Are You Scared of These 7 Stocks?

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The Magnificent 7 stocks are up 77% in the last year.

Today, most investors think these stocks are over-priced.

But is that true?

Let’s dig in to get the real story…

Price-to-earnings is the most common way to value a stock.

You simply take the share price. And divide that # by the earnings per share or EPS.

The S&P 500 currently trades at 20-times earnings.

Let’s take a look at the Magnificent 7 for comparison…

You can see that these stocks trade at a multiple of 21 – 58-times earnings. And it’s logical that you might conclude…

“These stocks are over-valued.”

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However, that doesn’t tell the full story.

That’s because a company’s growth rate is very important.

For example, you’d be willing to pay a higher price (aka valuation)…

For a stock growing at 30% versus one growing at 10%.

Right?

So, we want to look at valuation based upon the growth rate.

The easy way to do this is by measuring the PE of a stock to its rate of earnings growth.

It’s known as PE/G.

How does the Mag7 stack up against other stocks?

This chart from FactSet shows that the Mag7 are cheaper than the other stocks in the S&P 500.

A lower number is better when it comes to PEG.

It shows that you’re paying a more reasonable price – relative to the expected growth.

Here’s my point…

Don’t let the high PE scare you away from these stocks.

The Mag7 are growing far more quickly than the average stock.

Even though they’re up a lot…

They’re actually cheap compared with the 493 slower growing stocks in the S&P 500.

AI is fueling huge earnings growth for these stocks.

You’re probably asking yourself…

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Ian