‘Magnificent Seven’ Trading at the Largest Discount in Nearly 7 Years: Report
The so-called ‘Magnificent Seven’ – the 7 biggest tech stocks listed in the US – are trading at substantially discounted valuations, Goldman Sachs’ analysts highlighted, citing the companies’ current price-to-earnings (PEG) ratios. These stocks witnessed a steep sell-off in September but may be set for a turnaround ahead of the new earnings season.
S&P Trading at Biggest Discount in Nearly 7 Years, Goldman Says
The seven US tech giants, also known as ‘The Magnificent Seven’ stocks, may be poised for a turnaround, Goldman Sachs analysts stated in their new note.
Notably, shares of the seven titans, including Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla, and Meta are currently trading at discounted valuations as their PEG ratio sits at 1.3, compared to 1.9 for the median S&P 500 stock. According to the analysis, this is the most significant discount since January 2017 and a level that has been attained only five times in the past 10 years.
“The divergence between falling valuations and improving fundamentals represents an opportunity for investors,” strategists including Cormac Conners and David Kostin wrote in a note dated Oct. 1.
The tech bigwigs are expected to receive an additional boost during the Q3 earnings period, with profit upgrades notably outnumbering downgrades. All things considered, Goldman’s Kostin has turned more bullish on the US stock market and now expects the S&P 50 to end 2023 at around 4,500 points, implying a potential upside of around 5% compared to the current levels.
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Tech Stocks Saw Worst Monthly Sell-off Since December 2022
Just a few months ago, in January, the magnificent seven traded on an 18% premium in PEG terms.
These stocks witnessed an impressive start to the year after the AI-driven rally lifted the S&P 500 from its 2022 lows. However, the optimism has weakened in recent months amid growing concerns that the Federal Reserve may keep interest rates elevated for a while longer.
As a result, the tech-oriented Nasdaq 100 saw the biggest monthly decline since December 2022. In addition, rising long-term Treasury yields have also weighed on the tech sector
Meanwhile, some analysts are not as bullish as those at Goldman Sachs. For instance, RBC Capital’s Lori Calvasina expects weakness in US stocks to continue, citing data from the AAII Investor Sentiment Survey, which showed that net bullishness saw a steep drop since mid-August, although it is not yet at levels that would signal capitulation.
Do you think the magnificent seven are overvalued? Let us know in the comments below.