Latest Post

Woman realizes that her service dog is “manipulating” her Chipotle Stock Alert: Get Ready for the Launch as CMG Reports Earnings Today

Megacap growth stocks have been on a tear this year, and there are no signs of slowing down.

Megacap growth stocks experienced a massive sell-off in 2022 before staging a massive recovery the following year. The recovery was led by well-known names, including Microsoft, Apple (AAPL 1.88%), NVIDIA, alphabet, Amazon, Meta-platformsAnd Tesla (TSLA 0.35%) – a group known as the “Magnificent Seven”.

However, Apple and Tesla had a slow start to 2024. At one point, Tesla was the worst performing stock in S&P500However, the story has changed completely. Along with Nvidia, Tesla and Apple were the best performing stocks of the “Magnificent Seven” over the past three months.

Now that these latecomers are in the mix, the Magnificent Seven are enjoying a resurgence in popularity. Here’s what’s driving Apple and Tesla higher and how you can invest in the Magnificent Seven now.

Change of mood

Recent developments at Tesla and Apple are a reminder of the impact that market sentiment can have, especially on short-term price movements. Tesla’s stock rose 10.2% on July 2 and 6.5% on July 3, adding to June’s 11.1% gain. Second-quarter delivery numbers beat expectations but were still 5% below the year-ago figure.

Tesla stock entered 2024 with heavy losses amid fears that electric vehicle (EV) demand is slowing, while the company’s artificial intelligence (AI) ambitions have also been questioned. Unlike other megacap growth stocks monetizing AI – such as Nvidia and Meta Platforms – Tesla’s robotaxi opportunity is still unproven, as the technology for fully autonomous driving still requires a human behind the wheel.

Competition both within the EV sector and from hybrid vehicles from established car manufacturers such as Toyotaposes a serious threat to pure-play electric car companies. And consumer spending on non-essential goods remains under pressure in today’s high-interest rate environment. Delaying a new car purchase could be one of the first budget cuts households make to offset the higher costs.

These challenges have not gone away, but the mood has certainly changed in Tesla’s favor.

Apple is in a similar boat. Growth has stalled as iPhone sales in China remain under pressure. Earlier this year, Apple failed to impress investors with its new product offerings, and there were concerns that the new iPhones would not have the AI ​​capabilities the market had hoped for. That sentiment changed in June during Apple’s annual Worldwide Developers Conference, where the company announced the integration of AI into several key product categories.

Before the recovery, Apple was the cheapest stock of the Magnificent Seven. A weakening share price and a rise in earnings per share fueled by buybacks made the stock a good all-around value. Still, the services segment was strong and investments in research and development had not yet paid off. The recent rise in Apple stock has brought its returns this year closer to those of the other Magnificent Seven.

NVDA diagram

Data from YCharts.

Filter out the noise

The best way to grow wealth in the stock market is to buy a company you believe in at a good price and hold it for the long term. You’ve probably heard some version of this strategy countless times. In practice, however, it’s much harder to implement.

There are always good arguments for owning or not owning a stock. And sometimes the negatives can outweigh the positives. That’s what happened to most of the Magnificent Seven stocks in 2022.

Earlier this year, some investors questioned Alphabet’s dominance as a search engine in a world with ChatGPT and other unknown threats. In late 2022, Meta Platforms’ price fell below $100 per share as TikTok threatened its flagship app Instagram and the company was heavily criticized for blowing money on unproven bets and buying back its shares at a high price. Today, Meta Platforms trades for over $500 per share.

Bull and bear markets never stop, but the pendulum can swing sharply one way or the other. And right now, investors may be on the brink of euphoria, but that doesn’t mean it’s necessarily a good idea to sell shares of the Magnificent Seven and run for the exits.

The challenge with selling a great company just because it seems expensive is that you then have to recognize when to get back into the stock. Timing the market rarely works because you have to sell And Buy at the right time, whereas buy and hold requires you to make only one good decision – investing in a company that can generate profits over time.

A diversified way to invest in the Magnificent Seven

There are numerous ways for investors to invest new capital in the Magnificent Seven. One of the easiest methods is to invest in a low-cost exchange-traded fund (ETF) for the S&P 500.

The Vanguard S&P 500 ETF (VOO 0.96%) has an expense ratio of just 0.03% and net assets of over $1.1 trillion. As of July 9, the total market cap of the S&P 500 was $46.8 trillion, while the cumulative market cap of the Magnificent Seven was $16.7 trillion – or 35.8% of the entire index. That means every dollar invested in the S&P 500 is equivalent to $0.36 in the Magnificent Seven and $0.64 in the rest of the market.

An even more aggressive approach would be to invest in the Vanguard Growth ETF (VUG 0.93%), Vanguard S&P 500 ETF (VOOG 1.12%)or the Vanguard Mega Cap Growth ETF (MGK 0.97%) – all of which have a higher concentration in the “Magnificent Seven” than in the S&P 500.

Let the Magnificent Seven work for you

Ultimately, the best approach to the Magnificent Seven depends on what you already own, your risk tolerance, and what themes you want to increase your exposure to. For example, if you’re already heavily invested in software stocks, it might not make sense to invest additional funds in Microsoft. Or if you believe Amazon Web Services will continue to dominate cloud infrastructure, you might be less interested in Microsoft Azure or Google Cloud.

If you’re looking for a balanced approach, consider one of the Vanguard ETFs mentioned above. They offer a cost-effective way to spread risk across the Magnificent Seven while still being active in other areas of the market.

Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Daniel Foelber does not own any of the stocks mentioned. The Motley Fool owns and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds – Vanguard Growth ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published. Required fields are marked *