Last week, the “Magnificent Seven,” a.k.a. the world’s seven biggest companies, lost over $1.5 TRILLION dollars, and investors are panicking. But what if I told you this might become one of the best investing opportunities you’ve had in the last couple of years?
In this article, I will reveal the three stocks from the Magnificent Seven that you absolutely CAN’T afford to miss. You’ll also learn my strategy to find undervalued stocks in the future.
Warren Buffett famously said, “Be greedy when others are fearful.” And this is exactly what’ll be the basis for this article.
Now, I won’t show you the three random magnificent seven stocks and leave it at that. That’s because being at the top of any sector isn’t permanent. Things change, simple as that. One day, you’re at the top, next, you’re not even in the running. If you don’t believe it, just look into the histories of Blockbuster, Palm, and AOL stock.
Process for Finding the Best Magnificent Seven Stocks
I’m sure you’ve heard of the magnificent seven. But if you haven’t, the magnificent seven are a group of tech stocks famous for growth and performance and for having significant influence in the stock market. In no particular order, they’re Alphabet, Meta, Tesla, Amazon, Nvidia, Microsoft, and Apple.
You might be asking, what exactly does ‘significant market influence’ mean in this context? Well, that just means they’re big movers in the market. The Magnificent Seven’s total market cap is one-third of the S&P 500’s total. So, any significant move from any of the seven stocks will be felt across the entire S&P500 index. We all saw this during the 2024 bull run, where Nvidia grew more than 170%.
And, of course, we see it right here, as the S&P 500 entered correction territory when the magnificent seven collectively lost over $1.5 trillion in value.
So why is that a good thing for us retail traders? In my experience trading stocks and options since 1999, I’ve seen lots of buying opportunities like I think we have today. They seem to come around every few years. And because the magnificent seven stocks usually trade at a premium, to me, last week’s correction appears to allow us to buy some excellent names at a discount.
These companies have also shown the ability to recover faster than most other sectors. So, when the markets stabilize, these seven are among the first stocks to regain lost ground.
But, how do you pick which ones to buy? There are only seven companies on the list, sure, but diving into their financials will still take a long time.
Screening for the Best “Magnificent Seven” Stocks
So, I’ll look into what Wall Street thinks about the companies through their analyst ratings for a quick shortcut. Analysts are professionals who analyze companies from top to bottom, from their revenue streams to their debt management and up to the potential headwinds and tailwinds they face across the broader economic landscape.
Then, they rate the stock on a scale of strong sell to strong buy based on how they think the company will perform in the next twelve months. For this analysis, I’ll only take the ones with a strong buy rating.
Aside from giving the stock scores, analysts also provide a high target price. This is what they think the highest the stock will go within the next year. They come up with these prices based on different valuation metrics. But, of course, this is just potential guidance and not a sure thing. Still, Wall Street’s approval and a high target price gives me a lot of confidence about these stock picks.
Next up, I’ll check their year-to-date stock performance and see which ones have had the biggest price decrease. This way, I can identify companies that analysts are highly confident in but have recently taken the biggest hit in price. A sharp decline in a well-rated stock could mean a temporary setback rather than a fundamental issue. So, these temporary setbacks mean excellent entry opportunities for you and me.
I added my watchlist of the magnificent seven to narrow down the search. Then, I ran the screen and arranged the list from largest to smallest negative price change, and now I have my top three.
But of course, this is just the first step in stock research. The next step is to figure out why analysts love these companies and if it’s enough reason for you to buy them.
So, now, let’s move on to discussing why the top three deserve a spot in your portfolio.
Alphabet
First up on my list is Google’s parent company, Alphabet (NASDAQ: GOOGL). We all know the search engine, which is now widely used as a verb. That’s how you know a company has made it.
But did you know that Google has other business operations across the tech industry? The company has three reportable segments.
First is Google Services, which covers Android, Chrome, search, Gmail, and other Google apps and services.
The second is the Google Cloud segment, which provides infrastructure and platform services for AI development, cybersecurity, data and analytics, and more.
Last is the Other Bets segment, which covers the rest of the company’s businesses in self-driving cars, healthcare, and others. So, its business is diversified and continues to grow and innovate to keep up with the changes.
Right now, GOOGL stock has fallen nearly 15% year-to-date, but it still has a strong buy rating based on 51 analyst scores and a high target price of $240. That’s a 45% potential upside.
Amazon
Next is Amazon (NASDAQ: AMZN), one of the world’s largest e-commerce and cloud computing companies. It’s actually a company that comes up a lot in my discord channel – because it’s a stock folks often sell covered calls on.
So, what started as a small online bookstore has turned into a giant in the tech field. These days, Amazon offers services ranging from streaming to cloud computing. The company also recently announced its commitment to developing and incorporating AI functionalities into its web service segment.
Amazon is undoubtedly a tech company, but its biggest money maker is still its online stores, which generated over $75 billion in revenue last quarter. It leverages its massive logistics infrastructure to deliver goods fast, making it the preferred choice for this delivery-centric economy.
Meanwhile, Amazon Web Services continue to grow as more and more businesses and clients use the platform for their digital needs.
AMZN stock has fallen nearly 12% since the start of the year. However, 50 analysts still rate it a strong buy, with a high target price of $306. That’s a potential 55% upside!
Nvidia
Last but not least on my list is Nvidia (NASDAQ: NVDA). Here’s an interesting story about Nvidia’s rise to the top. The company used to be known for high-quality graphics cards, which were used for gaming and productivity tasks that require high computing power. It didn’t have much competition in the space, except perhaps for AMD. However, it never really quite matched Nvidia’s sales.
During the pandemic and the crypto mining boom, miners bought out entire stores’ worth of Nvidia cards for their rigs. It got so bad that some of my friends couldn’t even buy single graphics cards then.
Now, do you know what else requires high computing power? AI platforms. So, it was inevitable that Nvidia would rise to the top of the tech sector because its hardware proved perfect for running and training AI models. Companies racing to develop AI applications, from chatbots to deep learning systems, now rely on Nvidia’s cutting-edge chips to power their innovations.
NVDA stock has fallen roughly 12% year-to-date. That gives investors a chance to snag shares for cheap! If you’re not convinced, NVDA stock has a strong buy rating from 44 analysts, and has an over 80% potential upside based on a $220 high target price.
Final Thoughts
The Magnificent Seven presents the kind of growth that most investors only dream of. However, you need to be mindful of your entry – and this trillion-dollar correction might be your best opportunity. Still, remember that markets are fluid, so do your research before investing.
So, what do you think? Are any of these top stocks on your radar? Let me know in the comments; I’d love to hear your thoughts!
*Disclosure: On the publication date, Rick Orford held positions in AMZN and GOOGL.
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