Signs of the revival of "The Magnificent Seven"! Increasingly attractive in performance and valuation! What are the strongest stocks?
"Magnificent 7" (M7) shows signs of revival.drifting.
In August, the M7, consisting of 7 leading US tech companies, adjusted due to concerns about high valuation and US recession, and experienced a lackluster performance compared to the S&P500 excluding the M7 index. However, showing momentum to recover from falling behind ahead of earnings announcements. This time,Factors behind the revival of M7The deviation from the closing price of 2,371 yen on the 9th is about Check M7's earnings estimates and valuationsEmerging from there.Check the 'strongest' stocks in the M7.Said.
When observing the year-to-date performance of the M7 index and the M7 index excluding the S&P500, it can be seen that since late August, the M7 index excluding the S&P500 has outperformed the M7 index. While the M7 index excluding the S&P500 reached a year-to-date high at the end of September, the M7 index has been unable to surpass the high set in mid-July.
However, it seems that the selling pressure on the M7 index has decreased, and in the recent period, the declines have been less severe. The current stock prices have narrowed the gap to less than 6% compared to the highs set in mid-July. If the M7 announces performance in line with market expectations in this earnings season, it may attempt to reach new highs.
The revival trend of the M7 is believed to be supported by the following three factors.
1) Valuation: Decrease in valuation due to adjustments
2) Performance Outlook: With earnings approaching, performance expectations are rising
3) Fund Flows: Observing a retreat in recession concerns and a slowdown in rate cuts, funds may flow back into growth stocks
Around July, when rate cuts were almost certain, investment money shifted from M7, which had slightly higher valuations at the time, to public utilities, real estate, and finance sectors with relatively lower valuations that benefited from rate cuts. Thanks to this, the M7 index excluding the S&P 500 hit a new high for the year by the end of September. However, currently there is a growing observation of a slowdown in rate cuts. The balance between performance outlook and valuation suggests that M7 is more attractive.
Expected EPS growth rate
When checking the expected EPS (earnings per share) growth rate, M7 is expected to increase by 4.1% this quarter, while M7 excluding S&P500 is expected to increase by only 0.8%. For the next quarter, M7 is expected to increase by 19.0%, while M7 excluding S&P500 is expected to decrease by 0.2%.
Valuation
Due to the stock price decline since mid-July, the expected PER (price-earnings ratio) of M7 has decreased and fallen below the average, while M7 excluding S&P500 has continued to rise, resulting in the expected PER reaching higher levels than the average.
Due to the stock price decline since mid-July, the expected PER (price-earnings ratio) of M7 has decreased and fallen below the average, while M7 excluding S&P500 has continued to rise, resulting in the expected PER reaching higher levels than the average.
Relative valuation and expected EPS growth rate suggest that M7 is becoming more attractive.You could say that.
Bullish signal also from technical indicatorsIs issuing. The M7 index has recently formed a "Golden Cross" (*) with the 25-day moving average line crossing above the 75-day moving average line. Last time (in mid-November 2023), a similar Golden Cross formation led to an uptrend.
(*) "Golden Cross" refers to the short-term moving average line piercing through the medium to long-term moving average line from below to above.
When checking the year-to-date performance of each M7, the stocks with strong momentum in stock prices recently are Nvidia, Meta, Tesla, Apple, Microsoft, Amazon.com, and Alphabet in that order.
● $NVIDIA (NVDA.US)$
The stock with the strongest recent momentum in stock prices is Nvidia. In addition to solid demand surrounding Blackwell, Nvidia is also shown to be regaining its uptrend based on technical indicators.
The stock with the strongest recent momentum in stock prices is Nvidia. In addition to solid demand surrounding Blackwell, Nvidia is also shown to be regaining its uptrend based on technical indicators.
("Dated October 10thNvidia breaks out above the triangle consolidation! Here are the top 5 semiconductor stocks with high performance and stock price correlation, "AI semiconductor demand is crazy".Refer to the endnotes for more details.)
● $Meta Platforms (META.US)$
Meta is the only stock among the M7 that has updated its mid-July high. After showing the results of AI investments in the previous earnings report, evaluation and expectations for Meta have been increasing.
Meta is the only stock among the M7 that has updated its mid-July high. After showing the results of AI investments in the previous earnings report, evaluation and expectations for Meta have been increasing.
● $Tesla (TSLA.US)$
Tesla has been bought back in anticipation ahead of the Robo Taxi event, but is showing signs of stalling near the high of July.
Tesla has been bought back in anticipation ahead of the Robo Taxi event, but is showing signs of stalling near the high of July.
● $Apple (AAPL.US)$
Apple is facing a mixed outlook with expectations and concerns about the sale of the new iPhone, resulting in a somewhat sideways trend.
Apple is facing a mixed outlook with expectations and concerns about the sale of the new iPhone, resulting in a somewhat sideways trend.
● $Microsoft (MSFT.US)$ 、 $Amazon (AMZN.US)$ 、 $Alphabet-C (GOOG.US)$
These three companies are all showing slightly weak momentum. Concerns about monetizing AI investments are a common factor. Alphabet is also affected by the fact that the US Department of Justice is considering breaking up Google.
These three companies are all showing slightly weak momentum. Concerns about monetizing AI investments are a common factor. Alphabet is also affected by the fact that the US Department of Justice is considering breaking up Google.
The projected revenue, EPS growth rate, and estimated PER for the next three quarters for each M7 company are as follows.
● $NVIDIA (NVDA.US)$
Looking ahead to the next three quarters, there is an expected slowdown in growth, but M7 stands out with overwhelmingly high growth rates. The current estimated PER is 40 times, slightly higher than other stocks, but significantly lower than the 5-year and 10-year averages. Considering the high growth rates, it can be said that there is no overvaluation. From both performance outlook and valuation perspectives, some may even call M7 'the strongest'. The earnings release date is scheduled for November 21st (E, *). Until then, attention will be on the substantial AI investments by Microsoft, Alphabet, and Meta, as well as their capital investment plans.
Looking ahead to the next three quarters, there is an expected slowdown in growth, but M7 stands out with overwhelmingly high growth rates. The current estimated PER is 40 times, slightly higher than other stocks, but significantly lower than the 5-year and 10-year averages. Considering the high growth rates, it can be said that there is no overvaluation. From both performance outlook and valuation perspectives, some may even call M7 'the strongest'. The earnings release date is scheduled for November 21st (E, *). Until then, attention will be on the substantial AI investments by Microsoft, Alphabet, and Meta, as well as their capital investment plans.
( * The earnings release date is based on Bloomberg data at the time of the report creation. Alphabet notation means the following: E: Estimated, C: Confirmed, T: Tentative.)
● $Meta Platforms (META.US)$
Double-digit revenue and profit growth are expected, providing strong support for the stock price. The current estimated PER is 25 times, making it relatively undervalued compared to other stocks. The estimated PER is slightly higher than the 5-year average but below the 10-year average. Depending on whether the performance uplift from AI investments meets investors' expectations in this earnings report, there may be potential for a further increase. The earnings release date is set for October 30th (C).
Double-digit revenue and profit growth are expected, providing strong support for the stock price. The current estimated PER is 25 times, making it relatively undervalued compared to other stocks. The estimated PER is slightly higher than the 5-year average but below the 10-year average. Depending on whether the performance uplift from AI investments meets investors' expectations in this earnings report, there may be potential for a further increase. The earnings release date is set for October 30th (C).
● $Microsoft (MSFT.US)$
This quarter is expected to have a single-digit earnings per share, which may create short-term performance pressure. The estimated PE is 32 times, close to the average level of the past 5 years. Without a performance surprise, the stock price weakness may continue. However, considering the stable earnings growth and the track record of leading in technology, it may become aware of the long-term investment attractiveness during adjustments. The earnings release date is scheduled for October 30th (C).
This quarter is expected to have a single-digit earnings per share, which may create short-term performance pressure. The estimated PE is 32 times, close to the average level of the past 5 years. Without a performance surprise, the stock price weakness may continue. However, considering the stable earnings growth and the track record of leading in technology, it may become aware of the long-term investment attractiveness during adjustments. The earnings release date is scheduled for October 30th (C).
● $Alphabet-A (GOOGL.US)$
Comparing the recent stock price reactions, the performance review is solid. The estimated PE is 19 times, the lowest among the M7, and below the average levels of the past 5 and 10 years. The consideration of Google's split by the US Department of Justice may limit the upside of the stock price. There are concerns over the proposed split due to the failed Microsoft split 20 years ago, but it may not be as significant, and continued attention is needed on the news flow. If there is a performance surprise, a reassessment may be possible. The earnings announcement is scheduled for October 29th (T).
Comparing the recent stock price reactions, the performance review is solid. The estimated PE is 19 times, the lowest among the M7, and below the average levels of the past 5 and 10 years. The consideration of Google's split by the US Department of Justice may limit the upside of the stock price. There are concerns over the proposed split due to the failed Microsoft split 20 years ago, but it may not be as significant, and continued attention is needed on the news flow. If there is a performance surprise, a reassessment may be possible. The earnings announcement is scheduled for October 29th (T).
● $Apple (AAPL.US)$
From a performance review perspective, the remnants of being the leading growth stock are fading for Apple. However, there is a possibility that this quarter could be the bottom for performance, and there is an expectation of gradual recovery in EPS on a quarterly basis. The estimated PE is 31 times, exceeding the averages of the past 5 and 10 years. To see a stock price increase, there may be a need for performance surprises, and results exceeding market expectations with new iPhone sales and AI smartphones. The earnings release date is scheduled for October 31st (T).
From a performance review perspective, the remnants of being the leading growth stock are fading for Apple. However, there is a possibility that this quarter could be the bottom for performance, and there is an expectation of gradual recovery in EPS on a quarterly basis. The estimated PE is 31 times, exceeding the averages of the past 5 and 10 years. To see a stock price increase, there may be a need for performance surprises, and results exceeding market expectations with new iPhone sales and AI smartphones. The earnings release date is scheduled for October 31st (T).
● $Amazon (AMZN.US)$
Revenue is expected to increase by double digits, but the adjusted earnings per share may be slightly negative or remain in the single-digit range. The estimated PE is 31 times, significantly below the averages of the past 5 and 10 years, possibly reflecting the weakness of the performance review. An increase in valuation may require a performance surprise. The earnings announcement is scheduled for October 25th (E).
Revenue is expected to increase by double digits, but the adjusted earnings per share may be slightly negative or remain in the single-digit range. The estimated PE is 31 times, significantly below the averages of the past 5 and 10 years, possibly reflecting the weakness of the performance review. An increase in valuation may require a performance surprise. The earnings announcement is scheduled for October 25th (E).
● $Tesla (TSLA.US)$
Among the M7, the earnings forecast for the next two quarters is the weakest. However, expectations for a performance recovery at the beginning of next year, combined with hopes for robotaxis, may have led to a rebound by the end of September. The expected PE ratio is 87 times, the highest among the M7. It cannot be denied that there is a buying aspect based on the expectations surrounding advancements in self-driving cars. If the performance is not as bad as market expectations, and there is a possibility of an earlier performance improvement than expected, there might be a potential for buying again. Due to the characteristic of being more likely to be bought based on expectations rather than performance, it is necessary to be cautious of volatility. The earnings announcement date is scheduled for October 23rd.
Among the M7, the earnings forecast for the next two quarters is the weakest. However, expectations for a performance recovery at the beginning of next year, combined with hopes for robotaxis, may have led to a rebound by the end of September. The expected PE ratio is 87 times, the highest among the M7. It cannot be denied that there is a buying aspect based on the expectations surrounding advancements in self-driving cars. If the performance is not as bad as market expectations, and there is a possibility of an earlier performance improvement than expected, there might be a potential for buying again. Due to the characteristic of being more likely to be bought based on expectations rather than performance, it is necessary to be cautious of volatility. The earnings announcement date is scheduled for October 23rd.
Lastly, for your reference, I would also like to include the deviation rate between the average target stock price and the most recent closing price. The average target stock price is based on a forecast by analysts for 12 months ahead, reflecting a longer-term outlook rather than short-term.
Created on October 11, 24 by Market Analyst Julie
Source: Compiled by moomoo Securities from Bloomberg
Source: Compiled by moomoo Securities from Bloomberg
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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