The 'Magnificent Seven' Are Expensive... But Worth It

As the bull market rolls on, one group of stocks is leading the charge... By now, you've probably heard the mainstream media's flashy nickname for this group. These seven stocks are collectively known as the "Magnificent Seven." [Chaikin PowerFeed]( The 'Magnificent Seven' Are Expensive... But Worth It By Marc Gerstein, director of research, Chaikin Analytics As the bull market rolls on, one group of stocks is leading the charge... By now, you've probably heard the mainstream media's flashy nickname for this group. These seven stocks are collectively known as the "Magnificent Seven." They are Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Tesla (TSLA), and Meta Platforms (META). Sure, we all know that the major indexes are soaring so far this year. But the overall market picture dramatically changes if we only look at these seven companies... The Magnificent Seven's median gain was 24% over the past three months. Meanwhile, in the same period, the median gain for the 493 outcasts in the S&P 500 Index was only 5%. That type of outperformance might lead you to believe that the Magnificent Seven are now too expensive. You might even think we should avoid them and buy the 493 outcasts. Not so fast! As I'll show you today, the Magnificent Seven are more attractive than many folks realize... Recommended Links: [Until MIDNIGHT: Incredible New Stock-Predicting AI System]( The financial industry is the next in line to be completely disrupted by artificial intelligence (AI). Leading that charge is a groundbreaking AI algorithm called An-E. What makes An-E so revolutionary? Two things: 1) It can predict stock prices four weeks into the future with incredible accuracy... and 2) It's specifically designed for the everyday person – NOT Wall Street. You can begin using it today on 3,000 stocks. Until midnight tonight, [click here to see it in action]( (includes three free stock predictions). [BREAKING NEWS: The U.S. Dollar Is 'Going Crypto']( Days ago, the U.S. government took the first step toward creating its own cryptocurrency… a "federal bitcoin." The U.S. Treasury and 120 banks have already signed up. If you get positioned immediately, you could make 3,050%. [Click here to learn more](. A price-to-earnings (P/E) ratio alone doesn't tell you everything you need to know about valuation. In reality, it's all relative. It depends on the specific company you're looking at. In everyday life, that concept is easy to understand. You need to pay more money if you want to live in a better house, drive a better car, take fancier vacations, and more. It's the same thing in the markets... I'd love to buy into chipmaker Nvidia (NVDA) and its artificial-intelligence prospects for 20 times next year's earnings. But that's not happening... I either need to pay up and buy shares at 49 times the company's projected one-year earnings per share ("EPS") or take a hike. Now, I could "geek out" and use math to explain how to evaluate P/E ratios. But I'll spare you that headache. Instead, a practical approach to a P/E ratio depends on three things... One is interest rates (meaning "discount rates"). We'll skip that part of the discussion today because interest rates play a role in stocks across the board – not just expensive ones. Next is expected future earnings growth. The greater the expectation, the higher the proper P/E ratio. For example, Nvidia will likely generate far too much growth to justify a P/E ratio of 20. Finally, this approach depends on company quality. Higher-quality companies come with less business risk. So in turn, they can command a higher proper P/E ratio. With that in mind, let's compare the Magnificent Seven to the 493 outcasts. We'll start with the median P/E ratios and expected long-term EPS growth rates... [Chaikin PowerFeed] As you can see, the Magnificent Seven win hands down. Next, let's look at company quality... In the table below, I'm comparing the Magnificent Seven and the 493 outcasts using metrics like the ratio of their long-term debt to equity, interest coverage, and more. Take a look... [Chaikin PowerFeed] In other words, the Magnificent Seven also win big in terms of company quality. Overall, they're less burdened by debt. And they enjoy higher margins and higher returns on assets. The bottom line is simple... Even after this year's big run, the Magnificent Seven could live with even higher P/E ratios. With these stocks, the biggest thing to keep in mind before putting money to work is risk. The Magnificent Seven better deliver on their growth expectations – or else. But the thing is, they didn't become the Magnificent Seven for nothing. They have a history of meeting – and exceeding – growth expectations. So as long as the companies come through again, their stocks might even be cheap today. Good investing, Marc Gerstein Market View Major Indexes and Notable Sectors # Hld: Bullish Neutral Bearish Dow 30 +0.47% 13 14 3 S&P 500 +0.98% 190 254 55 Nasdaq +1.82% 63 30 6 Small Caps +1.29% 647 981 313 Bonds +0.51% Communication Services +1.97% 11 5 4 — According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain Bullish. Major indexes are mixed. * * * * Sector Tracker Sector movement over the last 5 days Communication +4.96% Energy +1.84% Materials +1.81% Information Technology +1.04% Discretionary +1.04% Staples +0.62% Industrials +0.56% Financial -0.26% Health Care -0.77% Real Estate -1.84% Utilities -2.07% * * * * Industry Focus Homebuilders Services 26 8 0 Over the past 6 months, the Homebuilders subsector (XHB) has outperformed the S&P 500 by +13.33%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #3 of 21 subsectors and has moved down 1 slot over the past week. Top Stocks [rating] MHO M/I Homes, Inc. [rating] BLDR Builders FirstSource [rating] PHM PulteGroup, Inc. * * * * Top Movers Gainers [rating] TROW +8.27% [rating] NWL +7.71% [rating] CINF +6.85% [rating] DLR +6.63% [rating] INTC +6.60% Losers [rating] LYV -7.84% [rating] ENPH -7.48% [rating] JNPR -6.94% [rating] MHK -6.91% [rating] ANET -6.15% * * * * Earnings Report Reporting Today Rating Before Open After Close ETN, ON AVB, MPWR, RSG, VRTX ITW ANET, APTV, FANG, L, SYK, WDC, WELL SBAC No earnings reporting today. Earnings Surprises [rating] BAH Booz Allen Hamilton Holding Corporation Q1 $1.47 Beat by $0.22 [rating] TROW T. Rowe Price Group, Inc. Q2 $2.02 Beat by $0.29 [rating] CHD Church & Dwight Co., Inc. Q2 $0.92 Beat by $0.12 [rating] CNHI CNH Industrial N.V. Q2 $0.52 Beat by $0.03 [rating] XOM Exxon Mobil Corporation Q2 $1.94 Missed by $-0.08 * * * * You have received this e-mail as part of your subscription to PowerFeed. 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