Shelby McFaddin, an investment analyst at Motley Fool Asset Management, spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
ANDY MILLS (AM): So the Magnificent Seven is no longer magnificent. Everybody knows that. Now, what do you see happening in the next year or so with these stocks?
SHELBY MCFADDIN (SM): We’ll probably see a little bit of a continuation of what we see now, which is essentially that the rapid growers are what’s sort of the cream that’s being skimmed off and those that are more mature are being noticed as such. So when we saw sort of Apple a little bit plucked off, that’s for a completely different reason than Tesla. It’s because Apple’s a bit more mature and they’ve sort of always been that way. They’ve shown the market who they are, but in a time where there was a lot of consumer surplus, a lot of extra cash, they benefited and they grew in the similar way to stocks that are now sort of benefiting off of the AI rally. So that sort of annuity type of structure that we’re seeing with Apple in their hardware, that’s starting to come back into focus for investors and they’re realizing, okay, this is not necessarily the aggressive grower that I thought it was. So I think that’s part of what we’re seeing in that sort of split off.
Read more: Forget Apple and Tesla, maybe the ‘Magnificent Seven’ tech stocks should be the ‘Fabulous Five’
AM: Apple in the past was an easy pick for buyers of stocks. It was reliable, it was growing. If you were buying in the Magnificent seven, now which ones are you looking at?
SM: If we’re saying valuation agnostic, I would say some of our favorites would probably be Meta and then also Microsoft or Meta. They’ve got a great example of showing that management’s doing what they say they’re going to do. So over the last two years or so, they’ve mentioned we’re gonna go ahead on this big cost cutting campaign and we know you can’t cost cut your way to success forever, but they did have a very long runway where they just spent and spent and spent and spent, and now they’re in a position where they’re able to eke out a dividend even. It’s small, but that means we’re headed in the right direction. When we also look at Microsoft, we know they’re in a really great position when it comes to crystallizing whatever there is to crystallize off of the AI frenzy. So we’re not, we’re still all kind of waiting to see what could be tangible, but we do feel like they’re in a great position to make something out of it. And they’re also well positioned having their Azure services. So between those two, I would say, if we’re putting the valuation aside, they have pretty strong fundamentals and we’ve seen a really great story for operational track record when it comes to Meadow.