This article first appeared on GuruFocus.
The stock market today can be compared to a Halloween movie sequel, with an “AI bubble” echoing the euphoria of the late-1990s, prior to the dot-com crash. Despite widespread warnings from experts like the Bank of England, IMF, and even business leaders such as Jeff Bezos and Jamie Dimon, U.S. stocks continue climbing, defying expectations for a correction. The key supports for this elevated market are investor excitement over artificial intelligence and the large, ongoing government deficits, both of which appear unlikely to change soon.
S&P 500 PE Ratio is now about the same level as at the start of year 2000 before the dot-com crash
Today’s U.S. stock market shows signs of a speculative bubble, heavily inflated by artificial intelligence hype and major fiscal deficits. The US CAPE Ratio is now very close to the highest ever recorded back in year 1999-2000 at the height of the dot-com mania. CAPE Ratio based on average inflation-adjusted Price-to-Earnings ratio from the previous 10 years.
While experts and investors alike recognize the risks, traditional corrective forces such as rate hikes and budget discipline are absent, keeping stocks aloftat least for now. Investors should consider shifting assets toward cheaper value stocks, non-US stocks or bonds, since lofty market valuations suggest underwhelming long-term returns for U.S. equities, despite short-term exuberance.
Despite near-universal recognition of frothy valuations, few investors are selling, and stocks push higher. Possible explanations for this behavior include greed, inertia, tax avoidance, irrational betting, or even a rational hope that the bubble will persist longer. A new generation of investors have taken charge to whom the dot-com era is about as relevant as the Dutch Tulip mania of the seventeenth century.
According to Hulbert Ratings, virtually every valuation metric with a proven record of forecasting future stock market returns is sending the same message, “the stock market is over valued”. The table below, (updated October 2025), lists ten of these market indicators. A 100% reading indicates that the market is more overvalued than at any previous point in U.S. history.
Source (Hulbert Ratings)
Sharp Rally in Gold Prices may be signaling investor anxiety.
A sharp rise in, year over year, gold prices as in the chart below (green line) is usually seen as a sign that some investors are getting worried about economic or financial turmoil, prompting them to seek safety in gold. While gold and stocks often move in opposite directions during crises, this relationship isn’t guaranteed and can break down in extraordinary market conditions. Generally, a sharp gold rally reflects rising anxiety or uncertainty, but it does not reliably predict an imminent stock market crash on its own.
Markets can remain irrational longer than you can remain solvent (John Maynard Keynes.)
We don’t really know when a bubble will burst. Historically, bubbles are pricked by central banks raising interest rates or governments tightening fiscal policy. Current political and monetary trends make higher rates or deficit reduction unlikely, with US President Trump pushing for low rates and bigger deficits. Only a fading of AI enthusiasm or AI capital expenditure spending could slow the market, and technological revolutions typically unfold over years.
With the above in mind I suggest readers look at three defensive value stocks which are trading near 10 year low stock prices. The opposite of a bubble. Because low investor expectations are already baked into the stock prices of these stock, prices are not likely to fall as much as growth stocks in a bear market.
Also, these firms have little to do with AI. The odds are good that people will be still eating soup, bread, snacking and cleaning their homes 20 years from now. Yet these firms are profitable, have a reasonable PE ratio, pay a dividend and are showing improvements in fundamentals.
|
Company |
Ticker |
Current Price |
Market Cap ($M) |
PE Ratio without NRI |
EV-to-EBITDA |
Operating Margin % |
10-Year Revenue Growth Rate (Per Share) |
10-Year EBITDA Growth Rate (Per Share) |
10-Year EPS without NRI Growth Rate |
|
The Campbell’s Co |
CPB |
30.13 |
8,969.79 |
10.11 |
10.19 |
13.20 |
4 |
1.70 |
0.90 |
|
Flowers Foods Inc |
FLO |
11.93 |
2,519.36 |
9.94 |
9 |
6.73 |
3.30 |
0.70 |
4.50 |
|
Clorox Co |
CLX |
112.46 |
13,694.66 |
14.55 |
11.96 |
16.65 |
3.60 |
-3.30 |
2.40 |
|
Ticker |
Company |
Current Price |
Dividend Yield % |
Forward Dividend Yield % |
Yield-on-Cost (5-Year) % |
Dividend Payout Ratio |
5-Year Dividend Growth Rate (Per Share) |
Years Of Dividend Increase |
Years Of No Dividend Reduction |
Continuous Dividend Start Year |
Dividend Frequency |
|
CPB |
The Campbell’s Co |
30.13 |
5.18 |
5.18 |
5.58 |
0.52 |
1.50 |
1 |
12 |
1986 |
Quarterly |
|
FLO |
Flowers Foods Inc |
11.93 |
8.17 |
8.30 |
10.33 |
0.81 |
4.80 |
22 |
22 |
2002 |
Quarterly |
|
CLX |
Clorox Co |
112.46 |
4.37 |
4.41 |
5.02 |
0.63 |
2.80 |
47 |
47 |
1978 |
Quarterly |
I chose these stocks not only because prices are low but they are basically contrarian investments in the current environment. These are contrarian names which adds diversity to the portfolio which should do well in case prevailing view of the market which is extremely bullish does not pan out.
They are all from the consumer defensive sector, which has been the second worst performing sector in the S&P 500 over the last 3 years. It is said that diversification and mean reversal are the only two free lunches in investing.
The Campbell’s Co. (NASDAQ:CPB)
Over more than 150 years, Campbell’s has grown into one of the United States’ leading packaged food companies, expanding far beyond its classic red-and-white canned soups. In fiscal 2025 (year ended July), snacks made up 43% of revenue, followed by soup at 27%, other simple meals at 23%, and beverages at 7%. Beyond its flagship brand, Campbell’s brands includes Pepperidge Farm, Goldfish, Snyder’s of Hanover, Swanson, Pacific Foods, Prego, Pace, V8, and the newly acquired Rao’s, which joined the company in 2024. Approximately 90% of its revenue is generated in the U.S., with the remainder coming from Canada and Latin America. Campbell’s has a narrow economic moat due to its strong brand and customer loyalty in the packaged food industry. It benefits from economies of scale and a robust distribution network though it faces strong competition from both branded and private label players.
Revenue and Operating Income per share has been trending upwards and the past 12 month trend is very strong.
Campbell’s Co. looks significantly undervalued when compared to its historical price ratios. The following chart shows 10-year median justified prices based on Price Earnings ratio, Price to median Sales ratio, Price to median book value ratio and Price to median Operating Cash Flow ratios.
CPB Data by GuruFocus
Clorox Co. (NYSE:CLX)
Since its founding over a century ago, Clorox has grown into a diversified consumer products company with operations spanning cleaning supplies, laundry care, trash bags, cat litter, charcoal, food dressings, water filtration, and natural personal care. In addition to its flagship brand Clorox, its portfolio features Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Kingsford, Fresh Step, Glad, Hidden Valley, KC Masterpiece, Brita, and Burt’s Bees. More than four-fifths of Clorox’s revenue is generated in the United States. Clorox is considered to have a wide moat based on robust brands and strong customer loyalty, supported by significant market leadership in household products. It benefits from economies of scale, strong distribution networks, and pricing power, making its competitive advantages durable and difficult for competitors to replicate.
Revenue and Operating Income trend over the last 5 years is flat and distorted by the sharp increase during the covid pandemic. However trend over the past 12 months appears to have stabilized.
Clorox Co. looks significantly undervalued when compared to its historical price ratios. The following chart shows 10-year median justified prices based on Price Earnings ratio, Price to median Sales rationand Price to median Operating Cash Flow ratios.
CLX Data by GuruFocus
Flower Foods Inc. (NYSE:FLO)
Flowers Foods Inc is an American bakery company that produces a wide range of baked goods for retail and foodservice customers nationwide. Flowers Foods was founded in 1919 by brothers William Howard and Joseph Hampton Flowers in Thomasville, Georgia, originally as a bakery producing fresh bread, cakes, and pastries for local customers. The company grew through acquisitions starting in the 1930s, expanded its market across the southeastern United States, and became publicly traded in 1968.
Over the decades, Flowers diversified its bakery product line and strengthened its brand portfolio. In the early 2000s, it shifted focus back to bakery products and made significant acquisitions including brands from Hostess in 2013 and Dave’s Killer Bread in 2015, broadening its reach in packaged and organic breads. Today, Flowers Foods stands as one of the largest producers of packaged bakery foods in the U.S., with a broad national distribution and a revenue exceeding $5 billion. Flowers Foods Inc has a strong narrow moat due to its well-established brand and customer loyalty in the baked goods market. The company benefits from economies of scale and a superior distribution network. However it faces significant competition.
Revenue and Operating Income per share show a rising trend, though there has been weakness in revenue growth in the past year and operating income growth has been mixed. The company is diversifying into “healthier for you”, whole grain breads and baked goods.
Flower Foods looks significantly undervalued when compared to its historical price ratios. The following chart shows 10-year median justified prices based on Price Earnings ratio, Price to median Sales ratio, Price to median book value ratio and Price to median Operating Cash Flow ratios.
FLO Data by GuruFocus
Buffett raises Cash
Gurufocus Buffett market indicator page shows significant overvaluation. So what is the patron saint of value investing Warren Buffett (Trades, Portfolio) doing in the face of market over-valuation? He is raising cash. Below is a table showing Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway cash hoard by year over roughly the last 10 years (in billions of US dollars):
|
Year |
Cash on Hand (Billion $) |
|
2024 |
334.20 |
|
2023 |
167.64 |
|
2022 |
128.58 |
|
2021 |
146.71 |
|
2020 |
138.29 |
|
2019 |
127.99 |
|
2018 |
111.86 |
|
2017 |
115.95 |
|
2016 |
86.37 |
|
2015 |
97.71 |
In recent quarters (late 2025), Buffett’s cash pile surged to record highs around $381.7 billion, the largest in Berkshire Hathaway’s history. This buildup reflects heavy caution and capital reserved for potential large investments amid market uncertainty.
Warren Buffett (Trades, Portfolio)’s investment strategy centers on buying high-quality businesses with durable competitive advantages at prices below their intrinsic value and holding them for the long term. He focuses on understanding businesses deeply, looking for strong management and consistent earnings growth, and demands a margin of safety in his purchases. Rather than trying to time the stock market, Buffett accumulates cash when attractive opportunities are scarce and deploys it opportunistically during market downturns based on fundamental value. His approach emphasizes patience, discipline, and rational capital allocation over short-term market predictions or speculation.
Conclusion
Legendary stock market operator, Jesse Livermore observed that human emotions like greed, fear, ignorance, and hope consistently influence market behavior, leading to recurring patterns. He emphasized that the market’s judgment is paramount, and opinions are often wrong, cautioning against arguing with the market. He considered the human element the biggest challenge for investors and speculators, highlighting emotional control as crucial. Livermore believed that market dynamics are timeless, with past events likely to repeat.
Alvin Toffler famously emphasized the necessity of adaptability in the modern world with the idea that the true illiterate of the 21st century will not be those unable to read or write, but those who cannot learn, unlearn, and relearn, highlighting the ongoing cycle of acquiring, shedding, and re-acquiring knowledge. Meanwhile, George Orwell observed that each generation tends to believe it is more intelligent than the one before and wiser than the one after, capturing the recurring nature of generational perceptions. Together, these reflections underline the repeating pattern that every generation must relearn essential lessons and adapt to new realities on its own.
Investors shouldn’t mistake the current lack of correction for genuine market health; high valuations eventually weigh down returns. It’s a prudent time to consider trimming some higher risk positions, look for value in defensive value stocks, and consider bonds as alternatives.
