I watched a good friend, Ryan Detrick, interview none other than Cathie Wood a few weeks ago.
The interview was informative and fun to watch, but one comment caught my attention.
It was when Cathie Wood referred to that group of stocks that we’ve all fallen in love with as the “Magnificent Seven.”
Her adjustment was to remove Tesla (TSLA) from the group, given its poor performance over the last six months. I also assume that Ms. Wood is also seeing the same difficulties that I see for Tesla stock over the next year.
Tesla aside, I spent a lot of time over the weekend looking at the charts and data for all seven of the stocks and came away with the feeling that there really are only four or five of these stocks that feel “magnificent” right now.
Here’s a breakdown of how far each company is trading from its recent highs.
Note that in Nvidia (NVDA)’s case, the -5.8% move from its recent highs happened on Friday. No news, no headlines, just selling pressure on Friday for a stock that is currently trading with a price-to-earnings (P/E) ratio, a common measure of value, of 73. For context, the average S&P company’s P/E is a hair below 28 right now.
If that’s not a warning sign, I don’t know what it is.
Also note the position of Tesla here. 28% lower from its recent highs while the stock still boasts the third highest P/E ratio on the list? Many may think that the selling has run its course on Tesla, but this could be the reason that Cathie Wood is considering it outside looking in on the “Mag Seven” group.
Another stock of interest, Apple (AAPL). The iterator (not innovator) is making headlines for their sales troubles in China. Shares are now trading 14% lower from their highs, but the stock is the most reasonably priced in terms of its earnings multiple.
You may ask, “CJ, which on the list is your favorite right now?”
Two among the list standout to me, and they’re the most reasonably priced.
Microsoft (MSFT) and Meta (META) remain two of the relative values in the Magnificent Seven. Both stocks are seeing less price volatility as they trade in a relatively tight range near their highs.
We’ll take a deeper dive into this group as the week continues, including a look at the weakening momentum in the tech-heavy Nasdaq 100 as the Mag Seven appears to be slowing its ascent.
Bottom Line
I think we can all agree that the Nasdaq 100 needs to take a healthy break. Friday’s selling of Nvidia shares gave us a preview of where the market will focus its profit-taking efforts when that break happens.
Look for an opportunity to buy Nvidia at prices that may be 10-15% lower than current and avoid the temptation of thinking that Apple and Tesla are good “value” plays when that correction does happen.
My money is focused on the upcoming buying opportunities on Meta, Microsoft, and Alphabet (GOOGL).
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.