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If There Was a "Magnificent Seven" of Value Stocks, These Stocks Would Make the Cut

Motley Fool - Sun Mar 31, 7:05AM CDT

The "Magnificent Seven" is a group of high market cap tech companies that play major roles in the economy and have delivered incredible gains for investors.

But investing isn't solely about growth or tech stocks. The most successful investors usually own a diversified portfolio with some tech, some growth, some value, and some dividend stocks, with further diversification by other classes and categories.

Value stocks offer much to the savvy investor. Investing legend Warren Buffett sticks almost entirely to value stocks, and he's one of few investors who has outperformed the market over many decades. He also recommends that most retail investors buy index funds that track the S&P 500, since it's not easy to beat the market long term.

If you are looking to add value stocks to your portfolio, consider Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B), Visa(NYSE: V), Walmart(NYSE: WMT), JPMorgan Chase(NYSE: JPM), Mastercard(NYSE: MA), Home Depot(NYSE: HD), and Costco Wholesale(NASDAQ: COST). These seven companies have some of the world's largest market caps, and have over the years created tremendous shareholder wealth. But even better, there's a lot more to come.

1. Berkshire Hathaway

Berkshire Hathaway has the seventh-highest market cap of any U.S. company, just behind all of the Magnificent Seven stocks except Tesla. But it has higher revenue than any of them except Amazon, and more net income than any of them except Apple. It's Buffett's conglomerate, and it wholly owns dozens of companies in addition to its massive equity portfolio. Buffett often talks about the idea that the best companies have long-term roles to play in the U.S. economy. Owning Berkshire Hathaway gives investors exposure to many great stocks, including Amazon and Apple, and gives investors the benefits of Buffett's wisdom and stock picks.

2. Visa

Visa comes in at No. 11 on the market cap list. It operates the largest credit card processing network in the world, with the most credit cards and the highest total payment volume. It enjoys growth as the economy grows, taking a fee every time a shopper swipes one of its cards. It has incredible profit margins that exceed 50%, and it has launched many new features to stay on top of financial technology trends and pad its moat. This Buffett stock also pays a dividend, and while it doesn't offer a high yield (just 0.7% at the current share price), management has boosted its payout by 420% over the past 10 years.

3. JPMorgan Chase

JPMorgan Chase is the largest U.S. bank by assets, with nearly $3.4 trillion. Its fortress balance sheet has largely shielded it from the economic volatility that has sunk a few regional banks over the past year or so, and it crushed earnings estimates in 2023. These are the sorts of traits that make it an excellent stock to own for the long term. It also pays a dividend that yields 2.4% at its current share price.

4. Walmart

Walmart is the largest U.S. company by revenue, and even though its fellow competitor Amazon is growing faster, the latter still has a ways to go to catch up. Walmart continues to generate higher sales, comparable sales, and profits, and it's still opening new stores around the world. It's also figuring out how to make its current assets work better, such as expanding store sizes, and it's finding new ways to grow, such as upgrading its advertising business to better compete with Amazon. Walmart's dividend yields 1.4% at the current share price.

5. Mastercard

Mastercard is right behind Visa as a high-margin credit card network powering the global economy. It's not as big as Visa, but its revenue and net income are growing faster, and so is its stock price. It has the same enduring model and business, and it's also a Buffett stock. Its dividend only yields 0.6% at the current share price, but its management team has been boosting it even faster than Visa's -- by 500% over the past 10 years.

6. Home Depot

Home Depot is the largest home improvement chain in the world, with more than 2,300 stores in North America. It has been feeling the pressure of inflation, but it's reliable for long-term growth and profit generation. It embraced the omnichannel model before it became popular and was well prepared for the pandemic. It's also well positioned to return to growth under more favorable economic circumstances. Home Depot's dividend yields 2.4% at the current share price.

7. Costco

Costco operates a discount retail chain with a membership model that creates loyalty and high sales. It has been reporting increasing income from membership fees and record renewal rates recently as shoppers are even more inclined to favor its rock-bottom prices when they're pinching pennies. Sales growth is starting to accelerate again, and Costco has a long growth runway as it continues to open new stores. Costco's regular dividend yields just 0.6%, but it also pays special dividends on an irregular basis, and its most recent one, which it distributed in January, amounted to $15 a share.

Value stocks deliver low-risk, steady growth

Let's see how these stocks stack up against their tech counterparts so far this year.

V Chart
V data by YCharts.

As a group, the Magnificent Seven have outperformed this cohort of value stocks so far this year, as the below chart suggests. But the former have also been more volatile.

All the value stocks are in positive territory this year, while the tech stocks aren't, and they're also almost all outpacing the S&P 500, which is up 10.1% year to date.

AMZN Chart
AMZN data by YCharts.

Value stocks create shareholder value with much lower risk. Even if you don't choose to invest in all of them, any of them could provide benefits for a diversified portfolio, and most of them come with the added benefit of dividend income.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, Home Depot, JPMorgan Chase, Mastercard, Meta Platforms, Microsoft, Nvidia, Tesla, Visa, and Walmart. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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