Why it may make more sense to buy 1,000 companies than just seven.
Which would you rather own: The 1,000 small and mid-sized U.S. companies that make up the S&P 1000 index, or the so-called “Magnificent Seven” big tech giants?
That has slashed their stocks from 34 times forecast earnings at the start of August to a bargain basement 27 times today.Goldman points out that the Mag Seven look cheap compared to their “long-term earnings growth rate,” which Wall Street pegs at 20%.The long-term investment return of U.S. stocks has averaged around 5% a year plus inflation.
By my math, within three years the Mag 7 would account for more than a third of the entire value of all U.S. listed companies. Within 7 years they would account for more than half.Microsoft stock currently trades at ten times the next twelve months’ expected sales. Forget earnings. For Nvidia, the chipmaker enjoying big AI-related demand, the figure is 14 times.
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