The Magnificent Seven Stocks: What are they and should you consider investing in them?

Forget the FAANG stocks, or even the WAAAX stocks…these days, it is the Magnificent Seven stocks that reign supreme.  These have become synonymous with success and stability. Typically growth stocks are seen as riskier than value stocks – not so with these stocks. They are at the top of their industries with very little competition worth worrying about (any that begin to show potential to bother them get quickly snapped up before they become a threat).

And these stocks all have significant opportunities ahead of them. In this article, we look at which companies are the ‘Magnificent Seven’, and whether or not you should consider investing in them.

 

Where did the term Magnificent Seven Stocks come from?

The origin of the term ‘Magnificent Seven can be traced back to a 1960 American western film of the same name. The movie tells the story of seven gunfighters who come together to protect a small Mexican village from a group of bandits. In this context, the Magnificent Seven represent a group of powerful and influential entities that have risen to prominence through their strength and resilience.

The use of the term towards these individual stocks coined by CNBC’s ”Mad Money’ host, Jim Cramer. This was to justify an investment strategy of his, namely to pick seven stocks that are considered the best in their respective industries and invest in them for long-term growth. A predecessor of this term were the ‘FAANG’ stocks which excluded Tesla and Nvidia, but it seems Cramner couldn’t come up with an acronym that was close to a word that people could pronounce.

 

What are the Magnificent Seven?

Today, the Magnificent Seven stocks are considered to be the seven largest corporations in the world. These include:

• • Apple (NDQ:AAPL)
  • Amazon (NDQ:AMZN)
  • Microsoft (NDQ:MSFT)
  • Alphabet (NDQ:GOOG),
  • Meta Platforms (NDQ:META)
  • Tesla (NDQ:TSLA)
  • Nvidia (NDQ:NVDA).

Not only do these companies have a significant market capitalisation and generate substantial revenue, but they also have a strong presence in their respective industries. Together, these companies are capped at US$16.9tn.

Apple is known for its innovative technology products, Amazon dominates the e-commerce market, Microsoft is a leader in software development, Google controls the majority of online search activity, Facebook is a social media giant, Tesla has revolutionised the electric car industry, and Nvidia is at the forefront of AI. Together, these companies have created immense wealth for their shareholders and continue to shape our modern world. Their success has made them household names and their stocks are highly sought after by investors around the globe.

In many instances, they were not the ‘first movers’ – for instance, there were search engines before Google (just Ask Jeeves) and social media platforms before Facebook (like MySpace), but these companies overtook them through innovation, offering customers ‘more for less’ and profiting through business models that (even now) many struggle to comprehend.

 

Why should investors consider the Magnificent Seven Stocks?

Firstly, these stocks are chosen based on their strong position in their industry, making them less susceptible to volatility and market downturns. This means that they have a higher chance of weathering any economic storms and providing a stable return on investment.

Secondly, these stocks are typically backed by solid financials and have a proven track record of consistent growth over the years. This makes them reliable choices for investors looking for long-term investments with relatively low risk.

Additionally, the Magnificent Seven Stocks are often well-diversified, meaning they come from different industries and sectors. This helps to spread out the risk for investors, as a downturn in one industry may not affect all seven stocks in the same way.

And finally, many have significant growth opportunity left in them. The transition to the Cloud is still happening, and Amazon and Microsoft are well placed to capture a significant share of that growth. If the metaverse and/or virtual reality become a thing, Facebook will be well poised to capture a market share. And while it is difficult to think of an opportunity for Alphabet off the top of one’s head, a company that has its employees to spend 20% of their time on side projects (and has over 180,000 geniuses as employees) will surely come up with something.

 

It’s not all milk & honey

But being part of the Magnificent Seven also comes with its challenges. These companies face intense competition between each other, changing market trends, and public scrutiny on a daily basis. In order to maintain their status as industry leaders, they must constantly adapt and innovate because of the risk of competition. Of course, their extensive cash reserves mean they can quickly acquire any companies that begin to show potential to be a threat to them.

Investing in the Magnificent Seven stocks can provide lucrative returns, but it is not without risk. As with any investment, thorough research and careful consideration should be taken before making a decision. These companies may be strong and influential, but their stock prices can still fluctuate and are subject to market volatility.

 

The risks of the Magnificent Seven

And so before jumping into these top-performing stocks, investors have plenty of things to ponder.

Firstly, it is important for investors to do thorough research and understand the companies and industries behind these stocks. This includes looking into their financials, management teams, and future growth prospects. It is also crucial to monitor any changes in the market or company that may affect the stock’s performance.

Secondly, investors should consider their own risk tolerance and investment goals before investing in any stock, including the Magnificent Seven. It is important to have a well-diversified portfolio with different types of stocks, such as growth and value stocks, to minimise risk.

Thirdly, it is important to have patience, because all these stocks achieved their growth over the long term (i.e. 5-10 years).

 

Conclusions about the Magnificent Seven

The Magnificent Seven stocks represent more than just successful corporations. They have become symbols of power, resilience, and innovation in the constantly evolving world of finance. Whether they will continue to hold this title remains to be seen, but for now, they remain at the top of their game and are likely to continue shaping the global economy for years to come.

In our view, looking at investing in the Magnificent Seven Stocks can be a viable strategy for investors looking for long-term growth and stability in their investments. However, thorough research and understanding of individual companies and industries is crucial before making any investment decisions.

And of course, above everything else, it is important to remember that upstarts could emerge and take their place. It is likely there is an entrepreneur (in a garage room or small flat somewhere) plotting for their startup to become the next big thing, but only time will tell if that dream becomes a reality.

 

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips