For the past three years, a huge share of the stock market’s action has been in the Magnificent Seven, a small group of super-successful, super-popular stocks.
There are signs of fatigue in this leadership group, but the Magnificent Seven remain mainstays in many people’s portfolios. They are Alphabet Inc. (GOOGL), Amazon.com (AMZN), Apple Inc. (AAPL), Meta Platforms Inc. (META), Microsoft corp. (MSFT), Nvidia Corp. (NVDA) and Tesla Inc. (TSLA).
Here are several perspectives on these key stocks. Think of them as a series of medical tests — x-rays, blood tests, magnetic-resonance imaging and the like.
Performance
The best stock-market performer among the Magnificent Seven this year by far is Alphabet, up 63% through Dec. 19. None of the starry seven are down, but Amazon.com is a laggard, up 4% while the Standard & Poor’s 500 Total Return Index has climbed more than 17%.
Price/Earnings
There are no cheap stocks among the Mag 7. If we compare each company’s stock price to its earnings, Meta Platforms looks best, selling for 29 times earnings. Most expensive by a mile is Tesla, at more than 300 times earnings. Tesla’s peak profit year was 2022, and its earnings have declined three years in a row.
Price/Sales
The Mag 7 companies generally boast high profits as a percentage of sales. That’s part of what makes them “magnificent.” Consequently, they sell at above-average multiples of sales. Most expensive on this score? It’s Nvidia at 24 times sales.
Cheapest? That would be Amazon.com, at 3.6 times sales. Yet in this case, “cheapest” doesn’t mean “cheap.” I generally look for price/sales ratios of 2.0 or less.
Price/Book
Book value equals a company’s assets minus its liabilities. Stocks that are cheap compared to book value may be bargains. None of the Mag 7 are cheap according to this metric. The average stock today sells for about 2.8 times book value, which is considerably above the historical norm.
The least expensive among the Mag 7 is Amazon.com, at 6.6 times book. Most costly is Apple, which weighs in at 54 times book.
Earnings Growth
The Mag 7 stocks are famous for rapid growth of revenue and earnings. Over the past decade, the most impressive growth rate is Nvidia’s, at 47% per year. Nvidia also boasts the best five-year growth, with a 74% annual clip, and the best one-year earnings growth, 54%.
The only negative figure in the whole batch is Tesla’s earnings growth over the past year, which is -20%.
Balance Sheet
Again, strength predominates. Most of the Mag 7 have relatively little debt. An exception is Apple, with debt equal to 134% of stockholders’ equity. The cleanest balance sheets by this measure belong to Alphabet and Nvidia, each with debt only 9% of equity.
Profitability
A common way to measure companies’ profitability is return on equity — profits as a percentage of the company’s net worth. Apple is best here, at 169%, followed by Nvidia at 111%. Less impressive is Tesla, recently at about 7%.
One also can look at net margin (profits as a percentage of sales). Alphabet, Meta and Microsoft are all above 30%, which is outstanding. Nvidia is at 53%, ridiculously good. Tesla lags at a bit over 5%.
PEG Ratio
For growth stocks like these, a very interesting measure is the PEG (PE to growth) ratio. The top number in this ratio is the price/earnings ratio, expressed simply as a number (34 for Microsoft, for example).
The bottom number, or divisor, is the company’s growth rate (usually for the latest year). For Microsoft it’s 19.9. That means the PEG ratio comes out to 1.7, fairly typical in this crowd.
Investors usually get excited if the PEG ratio is less than one. Only Nvidia can boast that distinction, with a 0.6 PEG.
Analysts’ View
Finally, I looked at how many analysts recommend each stock, as a percentage of the number of analysts who cover it. Amazon.com leads the parade with almost 96%, followed by Microsoft at nearly 94%. The only stock below the 50% line was Tesla at 44%.
My View
My favorite in this exalted group is Alphabet, which I regard as perhaps the most innovative company in the U.S. It not only owns the Google search engine, but also You Tube, Waymo self-driving cars and the Deep Mind artificial intelligence lab.
I’m pretty neutral on five of the remaining six, and I would shy away from Tesla, which faces increasing competition both from U.S. carmakers and from Chinese ones.
Disclosure: I own Alphabet personally and for almost all of my clients.