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Forget the magnificent Seven. The large US technology group Sceptet has built a reputation as the only game in town for investors. However, some of the less fashionable stocks are getting even better. Let’s take a closer look at the epic 47.
The Stoxx 600 Banks Index, which tracks 47 of Europe’s largest listed banks, has returned more than 100% since its launch in 2022, with stock price rises and dividends. The so-called Magnificent Seven managed about 90% over the same period.
Impressive statistics are partial reminders of the importance of choosing the right time series. Returning to the start of 2015, the banking sector returns are pretty static. Mag 7 rises to 2,600%. Still, it sometimes emphasizes that the beat-worthy stock will once again turn its head back.
Should the meeting continue? When stocks run wild, it’s easy to get sucked into the negatives. After all, no one likes to buy at the top of the cycle. And the environment is undoubtedly more challenging. The bank moved forward in 2022 for the same reasons that tech stocks fell that year. Interest rates began to rise. However, prices are falling again, putting pressure on profitability.
But they haven’t returned to zero. Analysts expect common stock returns across the index, from 12% to 11.4% in 2024, and from 11.1% to 11.4% in 2026.
It’s easy to assume that the bank looks toppie from an evaluation perspective as well. The Index trades close to book value, well above the average of 0.7 times over ten years.
But then, as the Mag 7 chart shows, there is a big difference when you choose the correct start date. European banks have been dysfunctional for over a decade. On the long-term horizon, the average booking price is close to 1.1 times.
Or compare it to other parts of the world: KBW US Banks Index currently trades at a premium of almost 50% of bookings, while Global MSCI ACWI Bank is 1.2 times. When comparing banks on a price-to-revenue basis, there is a similar trend.
Another important measure is how much cash a company can return. Counting dividends and buybacks, the sector currently offers a gross payment yield of nearly 10%, well above the historic average. It also supports the evaluation.
The size of bank equity meetings over the past few years has been helped by a very weak starting point. Given the changing interest rate environment and the uncertainty around everything from trade wars to local elections, it’s amazing how we can maintain the fierce pace of the past few years. But before the ratings become overly grand, there is still a scope of expansion.
This article was revised to fix the index growth rate
nicholas.megaw@ft.com
