Is Quality Cheap?

Yes.

Oct 14, 2014

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,

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