Money Rehab with Nicole Lapin - Beware of This "Magnificent 7" Stock — It's Not So Magnificent

Episode Date: June 4, 2024

For the last year, stock analysts have been going crazy over seven rockstar stocks known as the "Magnificent 7." But there's a dark side to these stocks— and one that is particularly risky. Today, Nicole explains the potential pitfalls and how to protect yourself.

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every occasion, and every celebration. Be sure to check them out at justinwine.com and receive 20% off your order for a limited time. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. So The Magnificent Seven is the name of a Western movie that has a 64% rating on Rotten Tomatoes. Obviously, that is not the Magnificent Seven we are talking about today. Today, we are talking about the Magnificent Seven stocks. Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla. In 2023, Bank of America stock analyst Michael Hartnett coined the term of the Magnificent

Seven after these seven stocks honestly had a pretty freaking magnificent year that year those stocks returned at least 48 year over year and brought the market overall up 26 because of the incredible returns these stocks have had some investors would say they're a must when it comes to your portfolio but there is a lesser known risky side to these stocks and that's what i'll be uncovering today. It's safe to say that this has become the new A-team of stocks, replacing Fang, which was Jim Cramer's nickname for Facebook, Amazon, Netflix, and Google, which he coined in the 2010s and later amended to Fang. That's Fang with two A's when Cramer

added Apple to the mix. The Magnificent Seven, of course, still includes all of these picks except for Netflix, which is up 34% this year, and that is pretty dang good. But Netflix did take a hit last year during the writer's strike, so its performance in 2023 wasn't as magnificent as the other Fang alums. As I'm taping this, NVIDIA is up over 136% this year, but Microsoft is up about 11%, Apple only 4%, Alphabet is up 24%, Amazon is up 18%, Meta is up 27%, and Tesla's stock is down 29%. The first area of concern is whether these stocks can keep delivering the way they have. You'll hear in every disclaimer ever, past performance does not guarantee future results. Alphabet, Apple, and Tesla were down at the beginning of the year, so some investors are shifting their focus to the fab four and zeroing in on Nvidia, Amazon, Meta, and Microsoft. But as

of now, all companies are performing well, except, as you just heard, Tesla. Tesla has had some major setbacks recently. Last month, Tesla had to recall its Cybertruck, Tesla's new ultra-futuristic vehicle. I don't know if you've seen them out on the road yet, but they're hard to miss. All Cybertrucks that had been shipped were recalled because basically the accelerator pedal was getting stuck, which is terrifying. And coming up next, on June 13th, Tesla shareholders are going to vote on Elon's pay package. The proposed pay package would have Elon get $56 billion, and some spectators are saying, understandably, that's just too much money. And perhaps most significantly, Tesla's value prop is changing.

In the very beginning of the company's history, Tesla represented innovation and sustainability. history, Tesla represented innovation and sustainability. Musk had figured out how to make EVs sexy, which I think we can all agree at this point, something Toyota was not able to pull off with the Prius. But many years later, Elon has more competition, and it is catching up with him. He has a worthy opponent in new EV companies like Rivian, as well as legacy manufacturers like Ford, who are also adding new EV models to their lines. All of this together has made one analyst, Gordon Johnson, who I will say has never been a Tesla fan, think that the company has the potential to plummet 86% in the not-too-distant future. So should Tesla be booted from the Magnificent Seven? Should we make it the Spectacular Six, continuing on with alliteration,

which I am a fan of. We probably won't be able to make this determination until we see how newer EV competitors do. But as I mentioned, one of the big concerns about the Magnificent 7 stocks is that they won't be able to keep up their incredible gains forever. That doesn't mean that these stocks won't be valuable because all of these companies within the Magnificent Seven are innovators and have intrinsically valuable technology. It just means that if there's intense speculation that one of these stocks might be overvalued, the price may, quote, correct and dip. The dark side of these stocks lies in how significantly these stocks play in our overall financial system. For example, if all stocks in the Magnificent Seven were to leave their exchanges

and start a whole new exchange just for those seven of them, they would be the second largest stock exchange in the world. And that just blows my mind. And at least for me, it paints a really clear picture of just how big these stocks really are and how chaotic it would be if these companies were to have a significant failure. I think about the US's stock landscape like I would any individual personal portfolio. There needs to be more diversification. The stock market is getting pretty concentrated, almost as much as 2000 and 1929, which famously weren't great years for the stock market. For today's tip, you can dig straight to the bank. If you've been investing in S&P 500 index funds,

awesome, congrats, A+. Now I'm going to give you a new index to potentially love, the Russell 2000. This is an index of all small cap companies, so no magnificent seven in there. Between the sheer number of companies in the Russell 2000 and their smaller valuations, that will probably add some diversity to your portfolio in case one of these mega stocks ends up being not so magnificent. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions,

moneyrehab at moneynewsnetwork do so email us your money questions money rehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me and follow us on instagram at money news and tick tock at money news network for exclusive video content and lastly thank you no seriously thank you thank you for listening and for investing in yourself, which is the most important investment you can make.