In the aftermath of the Silicon Valley Bank failure, the market has favored Mega-Cap stocks, as shown below.
The rationale is that tighter bank lending standards, the likely result of bank difficulties, will make borrowing more difficult and costly for smaller companies versus larger ones. Large companies have more access to needed capital via the bond markets and are, therefore, less reliant on banks. Further helping Mega-Cap stocks, any liquidity the Fed and government add to markets will flow to the large Mega-Cap stocks.
In addition to the chart above, Mega-Cap’s outperformance can be easily seen in the SimpleVisor scatter plot below. Our proprietary technical analysis shows that MGK, the popular Mega-Cap ETF, has the highest absolute and relative scores among 22 key stock factors.
Given many of MGK’s top holdings have soared and are approaching overbought territory, we thought it might be helpful to look beyond the top seven largest holdings of MGK to the remaining 44% of the ETF. We searched the remaining 87 stocks for past and future earnings growth and how efficiently they reinvest said earnings to promote future earnings growth.
Screening Criteria
- All MGK holdings, excluding the top seven shown in the above pie chart.
- 5yr EPS Growth Est. > 10%
- Prior 5yr EPS Growth >10%
- Return on Assets >10%
- Return on Investments >10%
- Return on Equity >10%
Company Summaries
Visa (V)
Eli Lilly (LLY)
Mastercard (MA)
Adobe (ADBE)
Zoetis (ZTS)
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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