Experts Say Investors Should Avoid the Magnificent Seven And Buy This Sector Instead

Published on: Feb 29, 2024
Author: Caroline Kong

With the U.S. stock market value of the Magnificent Seven continues to grow, more and more investors are worried about these large-cap technology stocks this year’s share price is difficult to reproduce last year’s strong performance.

Goldman Sachs latest analysis data show that in the fourth quarter of last year, hedge funds have quietly cut the Magnificent Seven position.

Goldman Sachs analysts wrote in the report, “Hedge funds reduced their holdings of large technology stocks while also looking for opportunities in cyclical stocks and some growth stocks.”

And just this week, Ed Butowsky, managing partner of Chapwood Investments, made a similar argument in an interview with Kitco News, asking investors to stay away from tech and high-growth stocks. He noted that the smart money will shift to utility stocks, and that the electric vehicles market (especially Tesla) is no longer the best place to invest.

According to Butowsky, the utilities sector tends to stay out of investors’ sights because it’s boring. In 2023, stocks in the utilities sector were under a lot of pressure as interest rates went up. But that’s not the case this year; interest rates should start falling soon, as will natural gas prices. Once natural gas prices fall, these utilities will reap windfall profits because much of their energy comes from natural gas and coal.

Utility stocks are expected to post a total return of 12% to 14% in 2024, Butowsky said.

As for the electric car space, particularly Tesla, Butowsky believes valuations are already too high. He notes that Tesla is a great company, it’s just that the stock is too expensive right now. The EV market is overdrawn, and investors holding related stocks are advised to reassess their risk in light of soaring valuations and more stable demand for EVs.

Among defensive sectors, utilities are the best bet from a value perspective, Dave Sekera, chief strategist for U.S. markets at Morningstar, said last month. The sector was the biggest laggard last year, but is about to be the main beneficiary of falling rates this year. Coupled with a surge in renewable energy spending, utilities are poised for a rebound.

Contrarian Investing Natural Gas Technology Utilities