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MIRROR MIRROR ON THE WALL, IS THE MAG 7 STILL THE FAIREST OF THEM ALL?

There was a time when the Magnificent 7 group of stocks were truly magnificent, but those times may be changing. According to Richard Bernstein Advisors $(RBA)$, the Magnificent 7 is a "remarkably unattractive group" especially given the attention it gets from investors.

"Some have claimed the Magnificent 7’s outperformance has been attributable to the companies’ superior earnings growth, but our research has repeatedly shown that such claims seem exaggerated. There have been many other US and non-US companies with equal or better earnings growth that investors have largely ignored." write RBA analysts in a note.

However, the analysts say that Mag 7 growth prospects and the growth prospects of the remainder of the global equity market that investors have ignored have now started to favor the remainder of the market. In other words, RBA says "the Magnificent 7 can now be considered average growers!"

In terms of investment alternatives, RBA says that international quality stands out because of its high projected median next-12 month earnings growth rate and strong dividend yield.

Additionally, materials, financials, and industrials all have similar median next-12 month projected earnings growth, while also offering higher median dividend yields than the Mag 7 stocks, and therefore offer competitive expected returns.

As RBA sees it, profit cycles in the U.S. and globally in many instances are starting to slow, and the equity market segments that traditionally outperform when profits accelerate are typically not those that outperform when profits decelerate.

The analysts add that, historically, quality has been a dominant factor when profits wane and, and that quality and defensiveness is now undervalued relative to the Mag 7, while offering similar or even superior growth.

Meanwhile, the RoundHill Magnificent Seven ETF MAGS.K is trading down 2.4% year-to-date, vs a 0.5% gain for the S&P 500 index .SPX. Industrials .SPLRCI, the top performing S&P 500 sector YTD, is up just over 8%.

(Terence Gabriel)

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