“While the Magnificent Seven may be putting on a strong front, the market’s rough waters require a discerning eye. In his expert analysis, Jim Cramer identifies three stocks that have the potential to outshine the rest and emerge as smart investment opportunities.”
The mega-cap tech giants, often referred to as the “Magnificent Seven,” have been dominating the headlines and Wall Street with their significant influence. However, behind the scenes, the rest of the market has been facing a challenging year. It is essential for investors to understand the dynamics at play and evaluate the risks and rewards of this tricky market.
To illustrate the disparity, let’s compare the regular market-cap weighted S&P 500, which is the benchmark index we often discuss, with the lesser-known equal-weighted S&P 500. The equal-weighted index assumes that all stocks in the index have the same weighting, providing a different perspective. When we look at the year-to-date performance, we can see how the Magnificent Seven, including Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla, have been driving the market. The market-cap weighted S&P 500 has gained about 8%, while the equal-weighted S&P 500 has experienced a loss of just over 5% in 2023.
This comparison is crucial because it suggests that the broader market may be ignoring the underlying risks such as rising bond yields, potential Federal Reserve interest rate hikes, geopolitical concerns, and the stability of China’s economy. However, the equal-weighted index, which gives every stock the same power, might be more reflective of these risks than some strategists acknowledge. Morgan Stanley equity strategist Mike Wilson recently stated that the chances of a fourth-quarter rally have diminished due to narrowing breadth, falling earnings revisions, and fading consumer and business confidence.
At the CNBC Investing Club with Jim Cramer, we focus more on individual companies and their underlying business fundamentals rather than the broader market. However, we do consider market conditions to determine whether it is overbought or oversold. As of now, our closely watched S&P 500 Short Range Oscillator continues to indicate oversold conditions. Following our investment discipline, we made small buys last week in companies that we believe in for the long term but have experienced unwarranted short-term selloffs.
Jim Cramer, in Monday’s Morning Meeting, shared a few buy ideas. While he prefers Amazon over Apple within the Magnificent Seven, he believes both companies have potential. Amazon reported a solid quarter, while Apple’s upcoming quarterly numbers may not be as impressive due to the timing of the iPhone 15 release. Nonetheless, Apple remains a stock to own for the long term. Outside of the Magnificent Seven, Jim highlighted chipmaker Broadcom as an opportunity, predicting that the stock could climb from around $830 per share to $1,200. He also mentioned that Honeywell’s recent quarterly report was better than many investors realize, presenting a buying opportunity.
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive trade alerts before Jim makes a trade. It’s important to note that Jim waits 45 minutes after sending a trade alert before executing a trade in his charitable trust’s portfolio. If Jim discusses a stock on CNBC TV, he waits 72 hours after issuing the trade alert before making a trade.
In conclusion, while the Magnificent Seven tech giants have been grabbing all the attention, the rest of the market has faced a challenging year. Understanding the dynamics of this tricky market is crucial for investors. At the CNBC Investing Club with Jim Cramer, we focus on individual companies and their underlying fundamentals. We take cues from the overall market conditions but also believe in buying stocks when they are going lower based on factors unrelated to their fundamentals.