The recent slump in Tesla (TSLA-Q) stock threatens its place in an elite grouping of companies that powered a surge in U.S. markets in recent years, experts said, while triggering chatter of an AI-linked replacement for the electric automaker.
The so-called “Magnificent Seven” - Apple (AAPL-Q), Microsoft (MSFT-Q), Amazon (AMZN-Q), Alphabet (GOOGL-Q), Meta Platforms (META-Q), Nvidia (NVDA-Q) and Tesla - staged a blistering rally last year and pushed Wall Street to record highs.
The group holds a collective weight of 28.6% in the S&P 500, up from 27.8% at the end of 2023. That is close to the highest weight ever for that group of stocks, according to LSEG data.
A successor to Tesla will likely be one that would be able to monetize the booming demand for artificial intelligence, a dozen institutional investors told Reuters.
“It’s Magnificent 6,” said Brandon Michael, senior investment analyst at ABC Funds.
“Tesla has a lot of issues with competition from Chinese EV makers, price cuts, shrinking margins and even Musk said it himself that the Dojo supercomputer is a long shot.”
“And if I were to put a seventh in there, it would be Broadcom, which is a leader in custom silicon and is facilitating the AI revolution.”
Tesla’s stock, which is down nearly 24% so far this year, formed a “death cross” on Thursday, a sign interpreted by some traders as portending more losses. The death cross kicks in when the 50-day moving average falls below the 200-day moving average.
Waning demand due to high borrowing costs and lower government subsidies, and price cuts across geographies are among challenges the EV pioneer is navigating.
Apple, the other laggard in the group, is down 2.94% as of last close. Its shares fell 2.2% on Friday after the company forecast a drop in iPhone sales and targeted overall revenue $6 billion below Wall Street expectations.
“What’s changed now is that we flipped over the calendar to 2024 and this is the “show me” year where people are looking at companies’ abilities not just to use AI, but to monetize AI, therefore, some of the shine has come off Apple,” said Art Hogan, chief market strategist at B Riley Wealth.
Meanwhile, mounting optimism around AI has lifted shares of Nvidia by 31% this year, Microsoft by about 9% and pushed a popular gauge of U.S. chipmakers to an all-time high.
Apple was dethroned by Microsoft as the world’s most valuable company in January as investors were disappointed by the lack of AI-related plans in its business model and subdued China demand.
Meta soared 21% to a record high on Friday after its first dividend and Amazon.com jumped 6.6% as it beat fourth-quarter revenue expectations.
The “Magnificent Seven” follows earlier investor phrases such as FANG, which initially was Facebook, Amazon, Netflix, Google, and then became FAANG to include Apple.
During the late 1990s tech boom, investors piled into the so-called “Four Horsemen,” which were Cisco Systems, Intel, Dell Computer, and Microsoft.
-- Johann M. Cherian and Ankika Biswas, Reuters
Also see: Nvidia sets monthly record with unprecedented market value surge in January
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Stocks to ponder
British American Tobacco (BTI-N) This global tobacco company, which has an ADR listing in New York, is sporting a 10 per cent dividend yield and is trading cheaply. Despite increasingly moving away from traditional cigarettes to innovative reduced-harm offerings, the company has been abandoned by most active managers and passive funds because of ESG mandates. Porfolio manager Trevor Scott thinks the risk/reward here is very good for investors who don’t mind holding a so-called sin stock.
Franco-Nevada Corp. (FNV-T) Optionality is a concept often misunderstood and undervalued. Two primary types of optionality come into play with a minerals royalty business model like Franco-Nevada’s: price optionality and land optionality. However, there is now a third option associated with Franco-Nevada – the potential reopening of the shuttered Cobre Panama mine option – and investors are currently getting this option for free, says portfolio manager Balkar Sivia.
The Rundown
After a rebound, bank stocks are no longer cheap but the risks remain
Canadian bank stocks have made strong gains since the end of October, even as formidable challenges linger over the sector. As David Berman tells us, the rally may be worth pursuing, but stocks are no longer a steal.
What Morgan Stanley’s chief Canadian strategist sees ahead for bonds, the TSX and interest rates in 2024
Forecasts of improving global economic growth, moderating inflation, lower interest rates, and positive year-over-year earnings growth all provide a positive backdrop for the stock market. But are these positive expectations already priced into equities? To break down where the economy may be headed, what type of returns investors may see, earnings expectations, and how investors may want to position their portfolios, The Globe and Mail’s Jennifer Dowty speaks with Stu Morrow, chief investment strategist at Morgan Stanley Wealth Management Canada.
Also see:
Blowout U.S. jobs report tempers market views on when BoC rate cuts will begin
Inflation-focused Fed shoots down Wall Street’s hopes of March cut
Projected buyback revival stands to bolster U.S. stocks in 2024
The rally that has taken U.S. stocks to an all-time high is expected to have another powerful driver in 2024: companies buying back more of their own shares. Stock buybacks are projected to increase this year after ebbing in 2023, fueled by forecasts of stronger corporate earnings that are expected to leave companies with excess cash. The total amount of buybacks could rise to US$1 trillion on an annualized basis.
Analysts see weak demand dragging on base metals in 2024
Base metals are in for a subdued 2024 with weak demand damping any bullish supply pressures, judging by the latest Reuters poll of analysts. Only copper and aluminum are expected to see average higher prices this year and expected gains relative to 2023 are highly modest at 2.8% and 2.1% respectively. Veteran metals reporter Andy Home reports from London.
Others (for subscribers)
The highest-yielding stocks on the TSX, plus risk data
John Heinzl’s model dividend growth portfolio as of Jan. 31, 2024
Number Cruncher: Seven Canadian apartment REITs with sustainable dividends
Number Cruncher: In search of undervalued U.S. equity funds with solid track records
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Globe Advisor
How this small-cap money manager seeks out growth stocks in volatile markets
Why investors are weighing risk, liquidity and yield in their product choices
Why investing in metals will be a volatile ride this year
How owning a successful Canadian retail stock helped this advisor advance her career
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Ask Globe Investor
Question: The S&P/TSX Composite Total Return Index has to be one of the most difficult numbers to find. Have you got a good source, and can you tell me what the index returned in 2023?
Answer: Yes and yes. Investing.com publishes the daily closing value of the S&P/TSX Capped Composite Total Return Index, which you can find by entering the full index name into the search box or using the symbol TRSPTSECP3. The total return index assumes all dividends were reinvested, unlike the regular S&P/TSX index, which reflects price changes only and excludes dividends.
To calculate the change in the total return index for 2023, click on “historical data” and expand the date range to look up the index’s closing values for 2022 (87,332.43) and 2023 (97,594.53). The difference between these two numbers is 10,262.10, which works out to an increase of about 11.8 per cent. That was the S&P/TSX’s total return last year, compared with a gain of about 8.1 per cent for the index without dividends. You can use this method to calculate the index’s total return for any time period.
If you want to find total returns for individual Canadian stocks, check out the compound returns calculator at CanadaStockChannel.com. Total returns for U.S. stocks can be found at dqydj.com, which stands for Don’t Quit Your Day Job.
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
Portfolio managers Jason Del Vicario and Steven Chen will outline three signs you’re holding a stock destined to lose money.
Enter the Dragon: World market themes for the week ahead
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Compiled by Globe Investor Staff