How much of a portfolio could be in AAPL, AMZN, GOOGL, META, MSFT, NVDA
The Super Six are worth a quarter. That’s the message Jim Cramer shared at last Satuday’s Investing Club Annual Meeting when asked how much of an investment portfolio these days should be allocated to the elite basket of technology stocks consisting of Apple , Amazon , Alphabet , Microsoft , Meta Platforms and Nvidia . All of the Super Six are Club stocks. Toss in non-Club holding Tesla , and the group is known as the Magnificent Seven. “We only have six of the seven. ⦠I’m actually OK with 25% in those,” Jim said at the meeting. “Some people would say that’s gutsy, but these are the most unbelievable companies I’ve ever seen.” What makes these stocks so formidable is the way they are “constantly reinventing themselves,” Jeff Marks, the Club’s director of portfolio analysis, said alongside Jim on stage. “They have plenty of cash to not only weather any potential storm but also invest in their future.” He continued, “You’re seeing that play out now,” amid booming interest in generative artificial intelligence. The Club portfolio, which consists of 32 stocks and cash, has nearly a 22% weighting in the Super Six. Investors might find themselves wondering: If these companies are so great, why not dedicate more of the Club’s portfolio to them? Perhaps some might even ask, why own anything else? The high-level answer is diversification â not putting all your eggs in one basket â remains an important risk-management tool, even if the dominance of the Super Six, or Magnificent Seven, in 2023 obscured the benefits of the classic investing rule. Let’s consider how to allocate a hypothetical portfolio consisting of 12 stocks and 10% cash. That’s about the number of names Jim recommends for individual investors to keep up on their homework . The Super Six, while talked about as one group, has exposure to various end markets and investment themes such as AI, cloud computing, and digital advertising, to name a few. With 25% in these six stocks, there’s ample space remaining for exposure to other notable investment themes, like the weight-loss drug boom through Eli Lilly , and the growing importance of cybersecurity through Palo Alto Networks . There may also be spots at the table for a best-of-breed retailer like Costco and a world-class industrial such as Linde , one of only 12 stocks to beat the S & P 500 on a total return basis each year since 2019. The lack of overlap with Linde, Costco, or Eli Lilly means that you might consider giving these stocks a slightly higher weighting than each Super Six name receives individually. That’s because when thinking about weighted exposure by end markets, a slightly higher weighting in these names may better balance out the overall portfolio. Keep in mind: These are just general examples of investment themes themes people may want to be exposed to. We mention Eli Lilly, Costco and Linde here because they are among the Club’s 12 core holdings alongside five of the Super Six: Apple, Amazon, Microsoft, Meta and Nvidia. As always with investing, everyone has their own their own goals, risk tolerance and time horizons. The hope is to provide general guidelines that can help investors construct their personal portfolios. Inside the 25% dedicated to the Super Six, there are three companies with significant exposure to the digital advertising market: Alphabet through Google Search and YouTube, Instagram and Facebook parent Meta Platforms â and, increasingly, Amazon with its e-commerce ads and now Prime Video . A comment from Alphabet on the digital ad market could move Meta’s stock, for example. There are also major links to the cloud-computing business: Amazon Web Services, the biggest player in the industry; Microsoft’s Azure and Alphabet’s Google Cloud, which are the No. 2 and No. 3 cloud-service providers. All three companies suffered from the same slowdown in cloud spending, or so-called “budget optimization,” in 2022 and into 2023. The entire Super Six cohort is also linked, in varying degrees, to the broader generative artificial intelligence trade. Investors are high on the AI theme at the moment, and while we believe the hype to be real and think AI will provide further earnings growth for all of these names over time, we have to acknowledge that if sentiment changes and people look to book profits on the AI trade, all are at risk of a pullback. Perhaps no stock has tighter AI linkage than Nvidia, whose high-powered chips serve as the computing foundation for the majority of generative AI models. But investors also are expecting AI adoption to kickstart growth for the cloud businesses of Amazon, Microsoft and Alphabet, as those companies spend billions of dollars building up AI computing infrastructure . Meta is spending billions, too, betting on AI to spark engagement and improve its ad-targeting capabilities so more marketing dollars flock to its apps. Apple may be less obviously linked to the AI trade compared with its Super Six peers, but then again some of the stock’s recent underperformance â down about 6% year to date â has been chalked up to a perception that the iPhone maker is behind on incorporating the buzzy tech into its products. Investors want details on the strategy because the optimistic view is that cool generative AI features incorporated in the next iPhone model could drive a major upgrade cycle. On Wednesday, at Apple’s annual shareholders meeting, CEO Tim Cook said the tech giant is “investing significantly” in AI and teased a major announcement later this year. The day before, employees were told Tuesday that Apple’s electric-vehicle program was being disbanded and resources were shifting to AI projects. To be sure, we’re not arguing all these companies are “the same” and should see their stocks move in lockstep down to the percentages. Distinguishing features among them are likely to drive different levels of performance in the short and long terms â shares of Nvidia, for example, have outpaced the rest of the group over the past 12 months due to the sheer magnitude of its revenue and profit growth as a dominant enabler of AI computing. In the 12 months that ended in January, Nvidia’s sales more than doubled and its profit skyrocketed 581%. Similarly, Meta has generated outsized gains over the same time period, advancing about 183%, as its topline returned to growth and its earnings per share â thanks to management’s dramatic embrace of cost discipline â boomed, up 73% in 2023. Compared to those two companies, Apple’s stock has not been as stellar, up only 24% over the past 12 months. But it’s still a major long-term winner and its relative performance looks different when taking a longer view: Apple’s five-year total return, which includes dividends, is about 329% compared with 202% for Meta. Over the same period, Nvidia’s total return is more than 1,900%. This give-and-take is why we have taken to owning all of the Super Six â though Alphabet has tested our patience lately â while remaining mindful of how the companies are correlated. Despite recognizing these are some of the best companies in the world, diversification means more than just different ticker symbols. Understanding how the stocks are linked creates an opportunity to build a well-rounded portfolio that balances risk and future returns. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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