Consumer staples are dangerously overvalued
The bear case argued against consumer staples is that their recent price run-up is driven by a flight to safety rather than fundamentals, leading to unjustifiably high multiples on negative earnings estimates.
The argument
The speakers pointed out that staples have converged with tech stocks to trade at 23x forward earnings. They argued this PE expansion is artificial and dangerous because it is occurring on negative forward earnings estimates, unlike tech companies which have actual earnings support.
The thesis, stress-tested
✓ What validates it
- ✓Staples companies reporting further downward revisions in forward earnings
- ✓A sharp correction in staples multiples back to historical averages below tech
▸ Risks discussed
- ▸Defensive flows continue to push multiples higher regardless of fundamentals
- ▸Staples companies manage to turn around their negative earnings estimates
Hear it yourself
"I've got the Staples forward PE, and I've got the tech forward PE. Oh, wow. And for the last Converge. Eight minutes crazy. As you would expect, the tech forward PE has been significantly higher, and now they are touching tips."
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