Magnificent Seven? Consider My Regular Seven Instead

Well, finally!

The stock market's advance is broadening out at last, after close to two years when most stocks didn't do much, while the so-called Magnificent Seven soared.

The Magnificent Seven consists of Alphabet Inc. (NASDAQ:GOOGL), Amazon.com Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Meta Platforms Inc. (NASDAQ:META), Microsoft Corp. (NASDAQ:MSFT), Nvidia Corp. (NASDAQ:NVDA) and Tesla Inc. (NASDAQ:TSLA). You won't hear another word about them in today's column.

Instead, I want to focus on rank-and-filed stocks that didn't do much in the past year, but have come alive in November and December. Using GuruFocus.com software, I searched for stock that fit that description, are reasonably priced,and don't have too much debt.

About three dozen stocks met my statistical tests and I've chosen seven to highlight today. Let's call them the Regular Seven, as opposed to the Magnificent Seven.

A wag once said, If something can't go on forever, it will stop. That's true, and I suspect that investors' focus will shift away from the Magnificent Seven in 2024, to a variety of other promising stocks. Here, then, are my Regular Seven.

Affiliated Managers

Based in Palm Beach, Florida, Affiliated Managers Group Inc. (NYSE:AMG) is as its name implies an affiliated group of investment-management firms. Typically, AMG takes a majority stake in the affiliate, gets a fixed percentage of the affiliate's revenue and provides a variety of support services.

Some of the affiliates are well-known firms, such as AQR Capital Management, Tweedy Browne (Trades, Portfolio) and Yacktman. Collectively, the amalgamation manages some $635 billion. The parent's return on equity recently was a sky-high 39%.

American Business

American Business Bank (AMBZ), based in Los Angeles, seeks to serve medium-sized businesses with loans, investment services and checking accounts. It has been publicly traded since 2014. It's a small-capitalization stock (market value $318 million) and so far as I can tell, no Wall Street analysts cover it.

Over the past 10 years, this little-known bank has grown its revenue at a 28% annual clip, and earnings faster. Yet the stock sells for only seven times recent earnings.

Cal-Maine Foods

After going nowhere for a good while, Cal-Maine Foods Inc. (NASDAQ:CALM) has jumped 25% from the end of October through Dec. 22. Based in Ridgeland, Mississippi, this is the largest U.S. egg producer.

Many companies try to smooth out their dividends from year to year. Cal-Maine doesn't. It pays fat dividends in good years, and slim ones in bad years. Currently, the dividend yield is 7.6%. The company is also debt-free, a rare thing these days.

Cullen/Frost

Another bank I like is Cullen/Frost Bankers Inc. (NYSE:CFR), based in San Antonio, Texas, and service primarily the Texas market. I view Texas as a high-growth state, and Cullen/Frost as a conservatively managed bank with good risk controls.

I like to see banks earn 1.0% or better on their assets. Cullen/Frost has managed to do that in 11 of the past 15 years. The stock sells for only 10 times earnings.

Ingles Markets

Unusually profitable for a supermarket chain, Ingles markets Inc. (NASDAQ:IMKTA) is based in Black Mountain, North Carolina, and does business mainly in the Southeast. The company's net profit margin is 3.6%, which would be slender for most industries, but is quite good for a supermarket.

Ingles has shown a profit in each of the past 30 years. (That's as far back as my database goes.) It earned a respectable 15.5% return on equity in the past four quarters. Yet the stock sells for a Rodney Dangerfield multiple of less than eight times earnings.

Myers Industries

Myers Industries Inc. (NYSE:MYE), with headquarters in Akron, Ohio, manufactures plastics, especially containers. It also makes supplies for car and truck repair.

The company in its current form went public in 2018. It showed a loss that year, but has earned over 15% on stockholders' equity each year since.

Under Armour

With my heart in my throat, I'd like also to offer a raw speculation: Under Armour Inc. (NYSE:UAA). The sportswear maker, out of Baltimore, Maryland, has been investigated by the Securities and posted erratic earnings over the past few years.

I think the company will fare better under Stephanie Linnartz, who was named CEO in February. She was an executive at Marriott for 25 years before taking on the role. Revenue is up slightly in the past four quarters, and earnings are up considerably.

Will my Regular Seven beat the Magnificent Seven in 2024? That's a tall order, given the superlative performance of the latter in the past two years. But I believe the pendulum is swinging toward value, and toward smaller stocks rather than the behemoths that constitute the Magnificent Seven.

I actually believe my Regular Seven can win.

John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.

This article first appeared on GuruFocus.