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Here are the takeaways from today’s Morning Brief. sign up Every morning you will receive the following message in your inbox:
Less than a year after its birth, the Magnificent Seven’s moniker is losing its welcome among stock market enthusiasts. This problem is growing bigger by the day, and so are the disparities in returns among this vaunted group of mega-cap stocks.
The magic of this motley team of Nvidia (NVDA), Meta Platforms (META), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Tesla (TSLA), and Apple (AAPL) is simply gone. is.
Nvidia is up 85% this year alone and seems to be in an asset class of its own. It has bucked the bear market almost every day, hitting all-time highs 29 times this year, and its market capitalization has soared by more than $1 trillion this year alone.
Meta Platforms doesn’t get as much press as some of the AI giants, but its market cap has increased by nearly $400 billion this year, and it’s up 175% year-over-year.
Amazon and Microsoft will add about $250 billion to the market capitalization of the S&P 500 and Nasdaq 100, respectively, this year.
Introduce the three people who are behind.
Tesla’s stock peaked in November 2021 and has since risen 75% over the next 24 months.
At first glance, one might wonder why Tesla was included in the original Magnificent Seven, given its tragic downfall. But the 2022 bear market has gutted all the market cap leaders of the past few years. It’s easy to forget that Meta’s market cap has also been cut by three-quarters.
By mid-2023, Tesla had doubled its stock price and was once again among the top 10 largest companies in the world.
Apple doesn’t suffer from the volatility that drives Tesla, but its large size still results in a significant, if smaller, drop in value. Apple is only down 10% this year, which equates to a loss of $385 billion in market capitalization.
Next is the alphabet. Stock prices have been weak this year, and sentiment is bearish. Despite being a major innovator and leader in the artificial intelligence field, the company has faced several high-profile embarrassments over its Gemini rollout, losing nearly $100 billion in a single day in February. .
Alphabet recently surpassed its 2021 high, but has since fallen back. If you squint at a multi-year chart, you’ll see a nice cup formation, perhaps with a handle in the middle. But for now, it’s just a fake breakout that just hit a new nominal high.
Eliminating the three clear laggards – Tesla, Apple and Alphabet – will improve returns for the Magnificent Seven over the long term.
And, as a purely intellectual exercise, Miles Udland, head of news at Yahoo Finance, reshuffled the “Magnificent” deck. He kept Magfor as an outperformer, lost three laggards, and added “diversified” stocks Costco (COST) and Eli Lilly (LLY) to his list.
Eli Lilly recently found fame (and fortune) with his weight loss drug Zepbound. At the beginning of 2023, its market capitalization was only about $350 billion, but it has since skyrocketed to more than $700 billion, putting it firmly in mega-cap territory. This year’s price/earnings ratio of 30% also makes it an attractive entrant.
Costco is well known as a large-cap consumer stock. However, being a “boring” staple, it is clearly unknown when it comes to artificial intelligence. That may make it a good counterbalance to other stocks that rely more on technology. It has a market capitalization of just over $300 billion and has returned just over 10% this year.
Overall, the rebalanced index competes well with the original. According to calculations by Yahoo Finance, MagFour plus Costco and Eli has returned nearly 135% since the beginning of 2023, outpacing MagSeven’s return of 90%.
However, neither came close to the Magfor return of 145% over the same period. As of this week, MagFour and the newly built MagSix are each up about 25% this year, while MagSeven is up 9%.
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