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What’s ailing the great brands of America? Big U.S. consumer-staples stocks – the likes of Coca-Cola Co., General Mills Inc., Colgate-Palmolive Co. and Procter & Gamble Co. – have offered investors nothing but pain in recent months. The sector has lost 13 per cent of its value since January.

In contrast, tech shares have delivered a buffet of joy. The fabled FAANGs – Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google’s parent, Alphabet Inc. – have held firm or climbed even higher, as have many lesser known tech names. The sector as a whole has gained nearly 10 per cent since the year began.

Rows of Heinz Tomato Ketchup, produced by the Kraft Heinz Co., line the shelves of a Walmart Super Center in Compton, Calif., on Jan. 10, 2017.

Mike Blake

The gap between these two corners of the market is now attracting the attention of contrarians, who believe consumer-staples stocks are poised to rebound. Based purely on valuation, the staples fans have an intriguing case.

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The core of their bullish argument is that products such as Heinz ketchup, Campbell’s soup and Pillsbury biscuits aren’t going to vanish from your grocery list any time soon. “It seems unlikely that, even with stiffer competition from new market players, these well-known brands will ever disappear from American households,” says Lawrence Hamtil at Fortune Financial, a wealth manager near Kansas City. “On the contrary, the combination of steeply discounted valuations and extreme pessimism may be the perfect foundation for a solid rebound in consumer staple stocks.”

In a recent blog post, Mr. Hamtil pointed out the large pricing gap that has opened up between consumer-staples stocks and their tech counterparts.

A portfolio composed of equal portions of each stock in the S&P consumer-staples sector would trade for slightly more than 17 times its net income over the past 12 months, he calculated. This is 15 per cent cheaper than the S&P 500 as a whole.

In contrast, tech is expensive. An equally weighted tech portfolio would trade for nearly 29 times earnings, an eye-popping 40-per-cent premium to the broad market.

These disparate valuations aren’t as unusual as you may think. Over the past 30 years, the tech and consumer-staples sectors have typically gone in opposite directions, Mr. Hamtil said. When consumer staples are red hot, tech tends to be ice cold, and vice versa.

If you assume this alternating pattern will continue, buying consumer-staples stocks now is a tempting proposition. History suggests tech stocks will eventually come back to Earth while consumer staples will rebound as investors rediscover the joys of stable, well-known brands.

To be sure, that’s not guaranteed. The fall in consumer-staples stocks in recent months goes along with a growing belief in some quarters that we’re witnessing an epochal shift, from a focus on brands to an emphasis on networks.

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According to this line of thinking, consumer brands exerted a big pull at a time when people were wary of unknown names and only a few companies could afford the mass advertising needed to drive shoppers toward their products. But consumers now crave novelty – witness the rise of craft beer and organic produce. Meanwhile, targeted online advertising allows upstart companies to appeal to niche markets and boost new names into the consciousness of potential buyers.

If big brands are losing their power, as many suspect, the economy’s power brokers are no longer the brand giants and massive retailers. Instead, online giants hold all the cards. They control the social media and search networks that have become essential to daily life.

While this may all seem rather theoretical, one fact is beyond dispute – the online giants are growing like weeds, while the brand giants are struggling to simply maintain what they have. Between 2014 and 2018, revenue doubled at Alphabet, nearly tripled at Netflix and almost quintupled at Facebook. In contrast, sales at Coca-Cola, General Mills, Colgate-Palmolive and Procter & Gamble all shrank.

Viewed from this perspective, the valuation gap between the tech sector and the consumer staples sector doesn’t look so unreasonable after all. So should you steer clear of the brand giants? Or embrace them, as Mr. Hamtil suggests?

One reasonable strategy would be assume that people will continue to show some loyalty, especially to personal-care products, where dependability may matter more than novelty. Diversified companies in that area, such as Colgate-Palmolive and Procter & Gamble – which both trade at reasonable prices with solid dividends – look like decent bets. But don’t forget to buy some Alphabet stock, too.

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