Why you should buy the other 493 S&P 500 stocks — and not the Mag 7
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Time for investors to get a wider stock screening.
The so-called “Super Seven” in the S&P 500 dominated headlines and schools of investor thought last year amid explosive growth around AI and profit growth. But as new narratives emerge in the market — like higher bond yields and inflated tech prospects — it may be time to sniff around the S&P 493’s other stocks.
Those 493 stocks could post very strong earnings growth of 11 percent this year (faster than 8 percent growth in 2024) and valuations may not yet reflect that, Gargi Choudhury, chief investment strategist at U.S.-based BlackRock, told Yahoo Finance Executive. Brian Sozzi In his inaugural auction podcast (video above; listen below).
The Mag 7 names are expected to grow earnings by 18% in 2025, slowing from the 25% pace in 2024 – a change that many well-heeled investors might not expect.
Chowdhury said there are good investment opportunities in finance this year.
Chowdhury said, “The theme that we will be talking about in the next year’s outlook is the level of quality. This is the intersection of what we call quality and growth, with a focus on valuations, because a clear valuation is very important to investors.”
Chowdhury may be ahead of the curve on her calls when earnings season opens.
FactSet estimates that seven sectors in the S&P 500 should report fourth-quarter earnings growth, and six should have double-digit growth. The financial sector is projected to grow its highest profit in the quarter at 39.5 percent.
“If you look at the revenue growth expectations, not only for Q4, but in Q1 we expect some of the strongest revenue growth for financials to come after tech and com services,” Chowdhury said.
FactSet says double-digit profit growth should hit information technology, consumer discretionary, health care, utilities and communications services names.
In addition to looking for quality and growth, “we’re talking about this concept of growth at an affordable price,” Chowdhury said. “We look at companies that can have strong, healthy balance sheets, low leverage and recurring revenue growth.”
In some cases, buying the S&P 500’s 493 other stocks at reasonable prices can be a defensive trade in the current environment.
The latest jobs report sent stocks on a downward spiral. Headlines abounded about how the Dow Jones Industrial Average lost nearly 700 points as cautious investors reacted to the Fed’s slight rate cut.
