A smart, concise explanation for why investors are overpaying for Colgate Palmolive, underpaying for Apple.
From GAMCO’s Howard Ward this morning on Bloomberg TV:
“The Colgate group of stocks—consumer staples—are trading at historically high valuations. Part of the reason for that is we’ve been in this slow-growth economy for years, and that has rewarded the more consistent slower-growth companies. There’s been this attraction on Wall Street to low-volatility stocks in recent years. This has been the biggest product that Wall Street has sold in terms of ETFs and mutual funds in the last couple of years. Low-vol stocks.
“What are low-vol stocks? Well, they’re consumer staples, utilities, some telecoms. These have been very very successful products, and they have become momentum stocks. Those valuations … 25 times earnings for companies that 2-3% top line growth…It ain’t going to last folks! So Wall Street is overpaying for that consistency. They’re underpaying for the more cyclical stocks.”