The year 2023 was the year we discovered the Magnificent 7, which were the top seven tech stocks that pushed the Nasdaq Composite index up by 43%. For the past 12 months, however, that rise has been trimmed back to 30.27%.
This is how Forbes.com looked back at their showing: “The Magnificent 7, defined as Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla, have seen a ‘magnificent’ run fuelled by AI optimism over the past fourteen months. The Magnificent 7 returned more than 106% in 2023, doubling the Nasdaq 100’s nearly 54% gain and significantly outperforming the S&P 500’s 24% gain.”
But by late February this year, this was their new take on this elite group of tech companies: “However, like dominos falling, these market generals are topping out and diverging from the broad market. First Tesla in July of 2023, then Apple and Google in February have topped, and now Microsoft is not making a new high with the broad markets’ most recent run higher.”
Given their massive rise, a pullback was always on the cards but there are still plenty of US tech and growth companies that still could deliver better returns, especially when US interest rates eventually fall. We’re currently in a pullback that could evolve into a 10% plus correction. However, oHthat only provides a buying opportunity for the long-term investor.
On Friday, the US saw growth come in at 1.6%, instead of the 2.4% economists expected. This could easily be a prelude number to more statistics that could say the economy is slowing and rate cuts are needed. Right now, we’re being told money markets are ruling out rate cuts, but this is the same mob who thought the Yanks would get seven rate cuts this year!
My strategy for 2024 and rolling into 2025 is to look for growth and tech companies that look like good value. This is why we’ve been rooting for Resmed, which reported well enough on last week to see the stock price spike 9.6% on Friday to $31.50. The stock is now up 44.36% over the past six months! It’s worth reading what Raymond Chan from Morgans says below about Resmed in our “HOT” stock column today.
Over the weekend, I had another reason to stick to tech and growth companies, with Morgan Stanley advising US investors to keep buying tech stocks before earnings reports.
This is how CNBC reported the tips from the US investment bank: “There’s still plenty of big tech-related stocks to buy ahead of earnings, Morgan Stanley said recently. The firm said investors should buy the weakness in stocks like Nvidia and Apple before the companies deliver their quarterly results.”
In other communications to the market, Morgan Stanley has also added Dell, Keysight Technologies and Fortinet.
In another insightful story from CNBC, Meredith Mutter, looked at the thinking behind the very adventurous tech investor Cathie Wood and her ARK Invest fund.
ARK Invest’s chief futurist Brett Winton lists five groups that should give tech investors an edge, and here they are: robotics, artificial intelligence, multi-omics sequencing, public blockchain and energy storage.
“We believe that this is a unique time in technological economic history,” he told CNBC’s “ETF Edge” this week and he contributes his ideas to Wood for her ARK Venture Fund (ARKVX). While the fund is up 39.48% over the past 12 months, it has had its ups and downs, with Wood being a supporter of Tesla and Bitcoin.
I think there’s a pretty good case to believe that tech has at least one good year, probably more if the likes of Winton is on the money talking about a “unique time in technological economic history.”
So, what local tech stocks are worth backing?
- NextDC (NXT) has a 13.9% consensus upside call, while UBS tips +23%.
- Xero (XRO) is flat on the consensus call, but Ord Minnett sees a 10.75% rise ahead.
- Megaport (MP1) has a 2.1% consensus forecast but Macquarie sees almost a 26% rise!
- Audinate (AD8) has +8.3% on the consensus call, while UBS is tipping a 22% jump ahead.
All four companies are quality tech businesses and are likely to be risers over time. If tech rides again in the US, these best tech businesses are bound to spike higher. Clearly, as the US gets closer to a rate cut or two, that’s when tech-believers will see nice stock price gains.
And even payments companies such as Block (SQ2), Zip Co (ZIP) and Tyro (TYR) could get some market love.
According to FNArena, SQ2 has a consensus call of +12%, TYR has it at +69% and ZIP is at +29.9%.
This latter group are for speculators, while the first group looks like more reliable plays.
Clearly, I’m not the only one who thinks tech stocks have legs! And that means my old favourite HNDQ, which captures the top 100 Nasdaq stocks with a hedge for a rising Australian dollar, also looks attractive for the year or so ahead.
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