Is Quality Cheap?
Yes.
GMO, a big asset allocator, has said for some time that U.S. quality stocks are relatively cheap. As of July-end, they're projecting 2.4% annualized real returns for U.S. quality stocks and negative 1.4% returns for U.S. large cap stocks over the next seven years. We can test their claim by using the simple but powerful Gordon growth model:
r = y + g,