In a Marketwatch.com article Richard Bernstein at Merrill Lynch notes that low-quality stocks are overvalued relative to their higher quality brethren.
“The valuation rubber band is clearly getting stretched,” Bernstein told clients.
One can also see this phenomenon played out in these nifty “market valuation graphs” over at Morningstar.com. Toggle between the “Size of Moat” or “Business Risk” to see the relative valuation of different quality stocks.
Barry Ritholtz notes that this argument (at least in regards to small caps vs. large caps) has been made before, so take it with a grain of salt.