Change Of Heart

One of my themes coming into 2011 was that "defensive" sectors were undervalued versus "risk on" sectors. We have seen a complete about face and I believe that some "defensive" names are starting to look a bit pricey, while some cyclical sectors like software are starting to look cheap. I will be looking more closely at this in coming weeks. These trends tend to overrun so calling a turn is tricky. Have a good night.

2 comments:

Brent Barber said...

I would agree with this comment.

Too many people are chasing yield and safety and have driven the prices to very risky levels.  May not be a horrible year for these stocks, but hard to see any upside.  

Take a look at a Met Life (MET) for example with a 5 P/E, forward P/E of 6, P/B of .5, yield of 2.5% and a management committed to returning capital in 2012 versus a Williams Companies (WMB) with a P/E of 19, forward P/E of 18, P/B of 2.4 and a yield of 3.2% in a regulated environment.

A lot of people buying the WMB stocks as they are perceived as safe as they have done so well the last couple of years, but are almost sure to be disappointed going forward.

Tsachy Mishal said...

I dont follow commodity sectors but I have been told companies structured as MLPs trade at more than double the valuation of their non MLP brethren in some cases for very similar businesses.