stock valuations matter just ask investors in meta platforms meta  facebook parent’s stock is lower today than where it traded in january 2017 meta’s experience over the last several years represents an extraordinary fall from grace for a company that used to dominate the market it was one of the fabled “faanmg” stocks whose market values were orders of magnitude bigger than all others its decline illustrates once again the gravitational pull of valuation seven years ago in a column on the dangers of overvaluation i included a specific warning about facebook from chris brightman ceo and cio of research affiliates facebook is the “poster child of our new tech bubble” he said then to make his point brightman bet that facebook stock now meta would be beaten by oil company chevron cvx  this was a gutsy prediction since unlike meta chevron was out of favor at that time in contrast to facebook’s trailing pe ratio of 92 chevron’s pe was just 9 brightman nevertheless has handily won the bet since the date of my column in august 2015 chevron stock has produced a 156 annualized total return according to factset versus just 44 for meta the source of meta’s dramatically lower return was not that the company was unprofitable on the contrary since brightman made his bet it has produced a cumulative total of 139 billion of net income versus 41 billion for chevron instead the reason brightman won his bet was that meta investors had skyhigh expectations for the company’s earnings and chevron investors had low ones it wouldn’t have taken much of a hiccup to cause facebook to come up short or much good news for chevron’s stock to surprise to the upside facebook and chevron are just two stocks but their experience is consistent with the relative returns produced over the past 70 years of the highest and lowest pe stocks this is illustrated in the chart below which plots the returns since 1951 of two hypothetical portfolios the first contained the 10 of us stocks with the highest pe ratios while the second contained the decile of stocks with the lowest such ratios the portfolios were reconstituted every june 30 based on trailing 12month earnings the returns were calculated by dartmouth college professor ken french the chart shows that the lowest pe stocks hugely outperformed the stocks with the highest ratios it isn’t even close the lowest pe portfolio beat the highest pe portfolio by 61 annualized percentage points to be sure french’s calculations do adjust for transaction costs but unless the low pe portfolio undergoes significantly more transactions than the high pe portfolio which i doubt transaction costs shouldn’t have a marked impact on the difference in their returns given brightman’s success with his 2015 projection that chevron would outperform meta i reached out to him again for the contrarian bet he would make today he offered not just one but two   cvs cvs over tesla tsla brightman points out that the former stock recently had a forward pe ratio of just 10 versus 37 for tesla   the uk stock market over us equities brightman points out that the ftse 100 index ukx currently sports a cyclicallyadjusted priceearnings ratio of 13 versus 26 for the sp 500 spx brightman stresses that neither of these is a shortterm bet since stocks’ relative returns over “a quarter or even a year” are “mostly random noise” however “over 5 or ten years valuation is a strong signal” mark hulbert is a regular contributor to marketwatch his hulbert ratings tracks investment newsletters that pay a flat fee to be audited he can be reached at markhulbertratingscom more this one stock stands out when looking at key data from the faang group plus stocks are having a stellar october why the bearmarket rally may have more room to run