The Invesco Food & Beverage ETF trades at 15x earnings. The holdings include companies with negative profits and high debt, a Seeking Alpha analyst warns. The cheap valuation is a trap.
Alpha Score of 50 reflects weak overall profile with strong momentum, poor value, strong sentiment. Based on 3 of 4 signals – score is capped at 90 until remaining data ingests.
The Invesco Food & Beverage ETF (PBJ) trades at about 15 times earnings, a discount to the S&P 500's roughly 22x multiple. A Seeking Alpha analyst warned that the cheap valuation does not make it a bargain. The analyst, who last reviewed the ETF in January and rated it not worth buying, said the index construction leads to exposure to low-quality companies.
The ETF follows an equal-weight index modified by revenue, which pushes exposure toward companies with weak fundamentals. Many holdings carry negative earnings and high debt, with low margins, the analyst said. The analyst argued that the apparent discount is a "trap" driven by index construction rather than fundamentals.
The analyst, who holds a long position in the SPDR S&P 500 ETF Trust (SPY), said PBJ's quality scores are well below the market average. The cheap valuation reflects the underlying risk, not a buying opportunity.
AlphaScala's proprietary model gives SPY an Alpha Score of 38, a mixed outlook.
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