The UK stocks just as good as America’s Magnificent Seven
A team of City analysts has put together different portfolios able to replicate the success of Wall Street’s original Magnificent Seven tech companies. Graeme Evans runs through the star stocks and methodology.
9th April 2024 13:32
by Graeme Evans from interactive investor
A portfolio built to replicate Wall Street’s Magnificent Seven has AstraZeneca (LSE:AZN), GSK (LSE:GSK), RELX (LSE:REL), Compass Group (LSE:CPG) and Experian (LSE:EXPN) among its select band of quality growth names.
The approach by UBS yields 14 European stocks that mirror the elevated style profile of the S&P 500 heavyweights such as NVIDIA Corp (NASDAQ:NVDA), Meta Platforms Inc Class A (NASDAQ:META) and Microsoft Corp (NASDAQ:MSFT).
Returns from the European group of stocks have outperformed America’s Magnificent Seven since 2021, although with the US ahead in 2023 after significant declines in 2022.
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Performance between both groups is back on par this year, with consensus estimates suggesting the European stocks are expected to return about 11% in the next 12 months.
The portfolio also includes the weight-loss drugs firm Novo Nordisk A/S ADR (XETRA:NOVA) as well as L'Oreal SA (EURONEXT:OR), Itaconix (LSE:ITX), ABB Ltd (SIX:ABBN), Aena SME SA (XMAD:AENA), Evolution AB (OMX:EVO), Moncler SpA (MTA:MONC) and Schindler Holding AG (SIX:SCHN).
Wall Street’s original Magnificent Seven was created based on the top seven stocks in the S&P 500, accounting for 25% of market cap worth about $12 trillion (£9.5 billion). The others are Alphabet Inc Class A (NASDAQ:GOOGL), Amazon.com Inc (NASDAQ:AMZN), Tesla Inc (NASDAQ:TSLA) and Apple Inc (NASDAQ:AAPL).
Most of the recent lists in Europe have tried to maintain seven as the “magic” number of stocks that will drive returns, with various iterations including the Seven Wonders of Europe. However, the top seven companies in the Stoxx 600 only account for 16% of market cap and are worth about $2 trillion (£1.6 trillion).
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UBS said: “The European market is more diverse, with less industry concentration than the S&P 500.
“Additionally, the style profile of both indices are very different, with Europe boasting a high-quality value profile with the additional benefits of dividend yield, and the US donning a high-quality growth profile.”
As a qualitative concept, the Swiss bank has sought to capture “magnificent” in different ways.
It compiled another portfolio that followed similar methodology as the original Magnificent Seven but focused on the top 25% of the Stoxx 600’s market cap instead.
Unlike the tech-centric US version, this strategy yields 18 stocks spanning various industries: AstraZeneca, Unilever (LSE:ULVR), Diageo (LSE:DGE), HSBC Holdings (LSE:HSBA), LVMH(EURONEXT:MC), Nestle SA (SIX:NESN), ASML Holding NV (EURONEXT:ASML), Roche Holding AG (SIX:ROG), L'Oreal, Novartis AG Registered Shares (SIX:NOVN), Novo Nordisk, Hermes International SA (EURONEXT:RMS), SAP SE (XETRA:SAP), Prosus NV Ordinary Shares - Class N (EURONEXT:PRX), Christian Dior SE (EURONEXT:CDI), Siemens AG (XETRA:SIE), TotalEnergies SE (EURONEXT:TTE) and Sanofi SA (EURONEXT:SAN).
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Returns from this group of stocks have been on par with the Magnificent Seven from 2021 to now, with Europe outperforming in 2022 when the US had significant declines.
On a total return basis, consensus estimates for this group of stocks generate about 12% in the next 12 months compared to the 14% expected from the US Magnificent Seven.
A third approach involved UBS tasking each of its European analyst teams with generating Buy and Sell ideas. Their collective efforts yielded a list of 32 Buy recommendations, including Rolls-Royce Holdings (LSE:RR.), BP (LSE:BP.), Tesco (LSE:TSCO), Whitbread (LSE:WTB), easyJet (LSE:EZJ), GSK, Anglo American (LSE:AAL), Imperial Brands (LSE:IMB), Beazley (LSE:BEZ), ConvaTec Group (LSE:CTEC) and Intertek Group (LSE:ITRK).
Returns for this group have been roughly in-line with the US Magnificent Seven year-to-date but at a more stable pace. Based on its analysts' price targets, this group of stocks is expected to return 26% in the next 12 months.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.