Tech Bargain Hunt: Why Pinterest and Reddit Beat the Magnificent Seven Right Now
TLDRReddit, Pinterest, Shopify among tech stocks with better free cash flow yields than the “Magnificent Seven”Analysts suggest higher-value alternatives in tech, healthcare, and financials as Mag 7 trades at steep premiumsEuropean tech stocks trading at discounts may offer better value than US counterpartsSome analysts remain bullish on Mag 7 despite current volatility, citing world-class brandsTop-rated Wall Street analysts recommend Braze, Applied Digital, and On Holding as strong buys with significant upside potentialThe so-called “Magnificent Seven” tech stocks – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla – have dominated market conversations. However, recent analysis suggests investors might find better value elsewhere. These market darlings took a hit in the recent tariff-triggered selloff, yet they still trade at steep premiums compared to the broader market.According to Trivariate Research analysts, the Magnificent Seven trade at multiples well above the S&P 500’s current multiple of 20. This premium pricing has some market watchers concerned about their future performance relative to the Nasdaq. Roundhill Magnificent Seven ETF (MAGS)Value Alternatives in TechFree cash flow yield, which measures a company’s free cash flow against its market valuation, is a key metric highlighting the potential value disconnect. Trivariate’s team points out that despite some drop in price-to-earnings ratios, they don’t expect the Mag 7’s free cash flow yield to improve substantially in the near term. This is largely due to these companies’ massive planned investments in artificial intelligence.Instead, they identify several tech stocks with higher free cash flow yields relative to their historical averages. These include Shopify, PayPal, Datadog, HubSpot, Reddit, Pinterest, and Okta. These alternatives may offer better value for investors looking beyond the most popular names.The median free cash flow yield for healthcare stocks is approximately twice that of the Magnificent Seven’s median, according to the analysis. Specific healthcare recommendations include IQVIA, a clinical research services firm, and medical device maker Insulet.Looking Beyond US BordersEuropean stocks present another alternative path for investors. Will McGough from Prime Capital Financial told Barron’s he expects continued volatility from big tech stocks and prefers less risky options like Procter & Gamble and Walmart.The European market rally that began earlier this year may just be getting started. The Vanguard FTSE Europe ETF, which holds positions in companies like Novo Nordisk, Nestlé, and Roche Holding, could be worth considering. This ETF also includes European tech companies SAP and ASML Holding, which trade at discounts compared to their Magnificent Seven counterparts.These European tech stocks may offer better value while still providing exposure to the technology sector. This approach allows investors to maintain tech in their portfolios without paying the premium currently associated with the Magnificent Seven.The Bull Case RemainsNot everyone has soured on the Magnificent Seven. Christopher Lange, head of investments at brokerage firm Cache, sees their recent price drop as an opportunity. The Roundhill Magnificent Seven exchange-traded fund now trades at 26 times this year’s earnings estimates, down from its 5-year average forward P/E of about 33.Lange remains bullish on the overall group despite potential near-term volatility. “It may be a fool’s errand to try and predict what can happen in the short-term. But all seven have world-class brands,” he told Barron’s. “The group will be volatile, but all will be resilient.”Meanwhile, top Wall Street analysts have identified other stocks with strong buy ratings and high upside potential. Braze, a New York-based software company providing customer engagement platforms, maintains buy ratings from all 11 top analysts covering it, with a projected upside of about 90.61%.Applied Digital Corp, which runs data centers powering AI and other computer systems, has buy ratings from all four top analysts covering the stock. Together, their 12-month price targets suggest an upside of approximately 160.7%.On Holding AG, a sportswear company known for its running shoes, received buy ratings from 11 out of 12 top analysts. Their combined 12-month price targets indicate a potential upside of about 44%.These analyst recommendations come from TipRanks’ Analyst Top Stocks tool, which tracks ratings from top-performing Wall Street analysts based on their success rates and average returns.The recent market volatility presents both challenges and opportunities for investors. While the Magnificent Seven stocks have dominated headlines and returns in recent years, current valuations suggest there may be better options available for those willing to look beyond the most popular names.For investors seeking value in today’s market, alternatives in tech, healthcare, financials, and European stocks may offer more attractive entry points. The key lies in examining metrics like free cash flow yield rather than following the crowd into the most talked-about names.The tariff-triggered selloff has created buying opportunities across the market. Smart investors will balance their portfolios with both established names and these potentially undervalued alternatives.Stay Ahead of the Market with Benzinga Pro! Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:Breaking market-moving stories before they hit mainstream mediaLive audio squawk for hands-free market updatesAdvanced stock scanner to spot promising tradesExpert trade ideas and on-demand support Don't let opportunities slip away. Start your free trial of Benzinga Pro today and take your trading to the next level!
