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  • Here’s an easy way to make a more concentrated play on the ‘Magnificent Seven’ stocks

    Here’s an easy way to make a more concentrated play on the ‘Magnificent Seven’ stocks

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    Investors in index funds have been well rewarded by a high concentration in the largest technology companies over the past decade. But there are also continuing warnings about the risk of such heavy concentrations, even in index funds that track the S&P 500. Solutions are offered to limit this risk, but if you expect Big Tech to continue to drive the broad market returns over the coming years, why not make an even more focused bet?

    Comparisons of three index-fund approaches highlight how successful concentration in the “Magnificent Seven” has been.

    The Magnificent Seven are Apple Inc.
    AAPL,
    +0.16%    ,
    Microsoft Corp.
    MSFT,
    +0.72%    ,
    Nvidia Corp.
    NVDA,
    -2.03%    ,
    Amazon.com Inc.
    AMZN,
    +2.17%    ,
    Alphabet Inc.
    GOOGL,
    -0.27%

    GOOG,
    -0.32%    ,
    Tesla Inc.
    TSLA,
    +9.37%
    and Meta Platforms Inc.
    META,
    +1.67%    .
    We have listed them in the order of their concentration within the Invesco S&P 500 ETF Trust
    SPY,
    which tracks the S&P 500
    SPX.
    The U.S. benchmark index is weighted by market capitalization, as is the Nasdaq Composite Index
    COMP
    and the Russell indexes.

    SPY is 27.6% concentrated in the Magnificent Seven. One way to play the same group of 500 stocks but eliminate concentration risk is to take an equal-weighted approach to the index, which has worked well for certain long periods. But here, we’re focusing on how well the concentrated strategy has worked.

    Let’s take a look at the group’s concentration in three popular index approaches, then look at long-term performance and consider what happened in 2022 as rising interest rates helped crush the tech sector.

    Here are the portfolio weightings for the Magnificent Seven in SPY, along with those of the Invesco QQQ Trust
    QQQ,
    which tracks the Nasdaq-100 Index
    NDX
    and the Invesco S&P 500 Top 50 ETF
    XLG
    :

    Company

    		 Ticker

    		 % of SPY

    		 % of QQQ

    		 % of XLG
    Apple Inc.

    		 AAPL,
    +0.16%         		7.05%

    		 10.85%

    		 12.46%
    Microsoft Cor.

    		 MSFT,
    +0.72%         		6.65%

    		 9.53%

    		 11.76%
    Amazon.com Inc.

    		 AMZN,
    +2.17%         		3.30%

    		 5.50%

    		 5.84%
    Nvidia Corp.

    		 NVDA,
    -2.03%         		3.02%

    		 4.44%

    		 5.33%
    Alphabet Inc. Class A

    		 GOOGL,
    -0.27%         		2.17%

    		 3.12%

    		 3.83%
    Alphabet Inc. Class C

    		 GOOG,
    -0.32%         		1.88%

    		 3.11%

    		 3.32%
    Tesla Inc.

    		 TSLA,
    +9.37%         		1.79%

    		 3.10%

    		 3.17%
    Meta Platforms Inc. Class A

    		 META,
    +1.67%         		1.77%

    		 3.60%

    		 3.12%
    Totals

    		  

    		 27.63%

    		 43.25%

    		 48.83%
    Sources: Invesco Ltd., State Street Corp.

    The same group of seven companies (eight stocks with two common share classes for Alphabet) is at the top of each exchange-traded fund’s portfolio, although the top seven for QQQ aren’t in the same order as those for SPY and XLG. QQQ’s weighting was changed recently as the underlying Nasdaq-100 underwent a “special rebalancing” last month.

    Here’s a five-year chart comparing the performance of the three approaches. All returns in this article include reinvested dividends.


    FactSet

    QQQ has been the clear winner for five years, but it is also worth noting how well XLG has performed when compared with SPY. This “top 50” approach to the S&P 500 incorporates many stocks that aren’t listed on the Nasdaq and therefore cannot be included in QQQ, which itself is made up of the largest 100 nonfinancial companies in the full Nasdaq Composite Index
    COMP,
    +0.45%    .

    Examples of stocks held by XLG that aren’t held by QQQ include such non-tech stalwarts as Berkshire Hathaway Inc.
    BRK.B,
    +0.77%    ,
    Johnson & Johnson
    JNJ,
    +0.79%    ,
    Procter & Gamble Co.
    PG,
    +0.94%    ,
    Home Depot Inc.
    HD,
    -0.12%
    and Nike Inc.
    NKE,
    -0.42%    .

    Now let’s go deeper into long-term performance. First, here are the total returns for various time periods:

    ETF

    		 3 Years

    		 5 Years

    		 10 Years

    		 15 Years

    		 20 Years
    SPDR S&P 500 ETF Trust
    SPY     		40%

    		 69%

    		 223%

    		 370%

    		 531%
    Invesco QQQ Trust
    QQQ     		41%

    		 113%

    		 430%

    		 882%

    		 1,158%
    Invesco S&P 500 Top 50 ETF
    XLG     		41%

    		 85%

    		 262%

    		 404%

    		 N/A
    Source: FactSet

    Click on the tickers for more about each ETF, company or index.

    Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

    There is no 20-year return for XLG because this ETF was established in 2005.

    For five years and longer, QQQ has been the runaway leader, but for 5, 10 and 15 years, XLG has also beaten SPY handily, with broader industry exposure.

    Something else to consider is that during 2022, when SPY was down 18.2%, XLG fell 24.3% and QQQ dropped 32.6%.

    For disciplined long-term investors, the tech pain of 2022 may not seem to have been a small price to pay for outperformance. And it may have been easier to take the pounding when holding SPY or even XLG that year.

    Here’s a look at the average annual returns for the three ETFs:

    ETF

    		 3 years

    		 5 years

    		 10 years

    		 15 years

    		 20 years
    SPDR S&P 500 ETF Trust
    SPY     		11.8%

    		 11.0%

    		 12.4%

    		 10.9%

    		 9.6%
    Invesco QQQ Trust
    QQQ     		12.0%

    		 16.3%

    		 18.2%

    		 16.4%

    		 13.5%
    Invesco S&P 500 Top 50 ETF
    XLG     		12.2%

    		 13.1%

    		 13.7%

    		 11.4%

    		 N/A
    Source: FactSet

    So the question remains — do you believe that the largest technology companies will continue to lead the stock market for the next decade at least? If so, a more concentrated index approach may be for you, provided you can withstand the urge to sell into a declining market, such as the one we experienced last year.

    Here is something else to keep in mind. In a note to clients on Monday, Doug Peta, the chief U.S. investment strategist at BCA, made a fascinating point: “The only novel development is that all the heaviest hitters now hail from Tech and Tech-adjacent sectors and are therefore more prone to move together than they were at the end of 2004, when the seven largest stocks came from six different sectors. “

    Nothing lasts forever. Peta continued by suggesting that investors who are tired of big tech taking all the glory “need only wait.”

    “[I]f history is any guide, their time at the top of the capitalization scale will be short,” he wrote.

    Don’t miss: These four Dow stocks take top prizes for dividend growth

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  • Before you short Nvidia after reading investment advice from ‘Twitter randos,’ read this

    Before you short Nvidia after reading investment advice from ‘Twitter randos,’ read this

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    Nvidia Corp.’s revenue doubled while its cost of goods barely crept up, so there must be something fishy, right? A company is using their Nvidia graphics processing chips as collateral for billions in loans — that doesn’t sound right, does it?

    As Nvidia NVDA shares fell 3.1% to close at $470.61 on Wednesday, Bernstein analyst Stacy Rasgon must have been hearing from clients all day who were worried after reading the most recent conspiracy theory on why Nvidia’s 222% year-to-date stock gain must somehow be fixed.

    “Recently…

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  • Congress returns to face shutdown fears — here’s what it means for markets

    Congress returns to face shutdown fears — here’s what it means for markets

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    U.S. lawmakers are due to get back to work Tuesday on Capitol Hill, and there are growing expectations that one fruit of their labors will be a partial government shutdown.

    “My guess is that we will have a lot of screaming and shouting, and we’ll end up shutting down the government, and a lot of people will be inconvenienced or hurt as a result of doing that, but we’ll do it,” said Republican Sen. Mitt Romney of Utah in an interview with a TV station in his home state.

    “And by the way, we’ll shut down government, and then we’ll open it. It’s not like that means that we win. No, no. We just shut it down to show that we’re fighting and making noise.”

    Investors should view the shutdown as largely noise, according to a number of analysts in Washington, D.C., who track lawmakers’ moves for Wall Street.

    “The stakes here are significantly lower than they were back in June, when we were facing default,” said Ed Mills, Washington policy analyst for Raymond James, referring to lawmakers’ efforts to reach a deal on raising the U.S. debt ceiling in order to avoid a market-shaking default.

    “For the most part, this is a 1 or 2 on a scale of 1 to 10 in terms of concern,” Mills told MarketWatch, adding that a U.S. default, on the other hand, would have registered as a 10 on that scale.

    There have been six government shutdowns since 1978 that lasted five days or more, and the S&P 500 stock index
    SPX
    gained in the four most recent shutdowns. Brian Gardner, chief Washington policy strategist at Stifel, emphasized that history in a note to clients.

    “Headlines regarding a potential budget impasse will grow and there could be a whiff of panic in the air, but investors should take all of this in stride. Markets tend to ignore the impact of a government shutdown,” Gardner wrote, as he offered the chart shown below.

    There have been six shutdowns since 1978 that lasted five days or more. Here’s how stocks handled them.


    Stifel

    From MarketWatch’s archives (September 2021): Here’s how the stock market has performed in past government shutdowns

    And from January 2019: The latest government shutdown is ending, after becoming the longest on record — by a wide margin

    How government shutdowns can hurt

    Stifel’s Gardner said that while past shutdowns suggest that investors should not panic, there still is some damage.

    “There will be extensive media coverage of closed entrances at national parks and other government facilities.  Government salaries will not be paid on time which is, certainly, a hardship for some families,” he wrote. At the same time, he emphasized that “much of the country will operate as usual,” including the military
    ITA
    and air traffic controllers — and missed paychecks will come through once the shutdown ends.

    From MarketWatch’s archives (January 2019): How furloughed federal workers can rebuild their finances after the shutdown

    “From a market perspective, the biggest concern relating to a government shutdown is that it could delay official government data reports at a pivotal time for the Federal Reserve,” said BTIG’s Issac Boltansky and Isabel Bandoroff in a note.

    Related: Jackson Hole recap: Fed rate hikes likely on hold for ‘several meetings’

    The BTIG analysts said they expect a shutdown will occur but it should be a “nonevent for markets” overall, because it “would have no impact on debt payments and any missed activity would be settled on the other side of reopening.”

    There could be a greater-than-anticipated impact on stocks
    DJIA

    COMP
    if the shutdown lasts for a longer time than expected, and if the deal to end the shutdown features unexpectedly large cuts to spending along with significant repeals of Democrats’ Inflation Reduction Act, according to Mills, the Raymond James analyst.

    “The most likely scenario is that it’s days, not weeks,” he said, regarding the length of any shutdown. He also noted it could hit consumer confidence and disrupt the initial-public-offering process for some companies.

    What’s likely to happen on Capitol Hill

    Only one chamber of Congress is returning to Washington on Tuesday, the day following Labor Day, after an August recess — the Senate. The House of Representatives is slated to resume its work on Capitol Hill a week later, on Sept. 12.

    Ahead of their returns, the Biden White House’s budget office has pushed for passage of a short-term funding measure to avoid a partial federal government shutdown on Oct. 1, when the government’s 2024 fiscal year starts.

    Such a measure is known as a continuing resolution, or CR, and they’re often used as the House and Senate work to agree on a dozen appropriations bills that would fund government operations for a full fiscal year.

    The debt-ceiling deal negotiated between House Speaker Kevin McCarthy and President Joe Biden set spending levels over the next two years, keeping nonmilitary spending for 2024 the same as 2023 levels. But House Republicans have adopted spending targets for the coming fiscal year at levels below the McCarthy-Biden agreement.

    McCarthy has raised the idea of a short-term funding bill with his fellow Republicans.

    “The thing that Kevin McCarthy is trying to tell his caucus is that we probably need to have a short-term CR, so that the House can finish its work on appropriations bills and establish the best negotiating position,” Mills said.

    The House Freedom Caucus, a hardline GOP group known for causing headaches for the chamber’s leaders, has voiced concerns. It said in an Aug. 21 statement that its members want to rein in outlays and will oppose any spending measure that doesn’t include a House-passed bill focused on security at the U.S. southern border. In addition, the group said any spending measure must address the “unprecedented weaponization” of the Justice Department and the FBI, as well as end “woke policies in the Pentagon.”

    The most likely path forward is the GOP-run House passes a short-term funding measure that incorporates House Freedom Caucus goals, and then there’s a showdown with the Democratic-controlled Senate over those policy riders, with a short-lived shutdown potentially taking place, Mills said.

    The Raymond James analyst said the most likely deal is a budget that’s in line with what was negotiated as part of the debt-limit deal. He also expects supplemental measures that provide relief for areas hit by Hurricane Idalia and the Maui wildfires, as well as some funding for Ukraine as it continues its fight against Russia’s invasion.

    “For investors, they have seen McCarthy go up to the brink, go through a tough situation and be able to pull a rabbit out of it,” Mills said, referring to his January battle to become House speaker and the spring’s debt-limit talks. And they’ve “gone through government shutdowns in the past, mostly with very minimal market reaction,” he added.

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  • How the stock market’s performance under Biden is worse than under Obama or Trump — in one chart

    How the stock market’s performance under Biden is worse than under Obama or Trump — in one chart

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    U.S. stocks so far haven’t fared as well under President Joe Biden as they did in Donald Trump’s single term or in either of Barack Obama’s two terms.

    The research team at Wilshire Indexes is pointing that out this month with the chart below, which features the FT Wilshire 5000
    XX:W5000FLT,
    an index that aims to reflect the performance of the total U.S. stock market.

    U.S. stocks haven’t performed as well in Biden’s current term as they did under Obama or Trump.


    Wilshire Indexes

    Biden and his allies could be worried about how stocks
    SPX
    are doing, and it’s possible his administration will try to help the market somehow in 2024, according to Philip Lawlor, managing director of market research at Wilshire Indexes.

    “With the 2024 election in sight, the disparity in cumulative equity return generated so far under the Biden administration compared to the superior return trajectory delivered by the Trump and Obama presidencies could cause some concern,” Lawlor wrote. “Electoral cycle logic points to the Biden administration doing its utmost to ensure that the gap closes next year.”

    Biden officially launched his re-election campaign in April, and the Democratic incumbent and his cabinet officials have traveled around the U.S. in recent months to talk up their economic policies, including measures such as the Inflation Reduction Act. 

    When asked about the stock market’s struggles earlier this year, one White House official told MarketWatch that the administration wants to see “strong performance,” but he also noted that roughly half of Americans don’t hold stocks and highlighted other economic indicators.

    “The markets are going to go up and down. The main measure that the president has about the state of the economy is, how are middle-class families doing?” said Bharat Ramamurti, deputy director of the White House’s National Economic Council.

    “Do they have good-paying jobs that allow them to support themselves and their families? Are they seeing their wages go up? Do they feel like they have good opportunities to advance in their career, good opportunities to switch jobs and make more money? Or live in a better neighborhood, or whatever the case may be? By those metrics, we think that the economy is doing very, very well.”

    Republican presidential hopefuls made their economic pitches at a debate on Wednesday night in Milwaukee, with Florida Gov. Ron DeSantis, who is currently running second in GOP primary polls, saying the country “must reverse ‘Bidenomics’ so that middle-class families have a chance to succeed again.” Trump, the current frontrunner in the 2024 primary, skipped the debate and instead released an interview just before the event kicked off.

    Betting markets tracked by RealClearPolitics give Biden a 35% chance of winning the 2024 presidential election, while Trump is at 27% and DeSantis is at 6%.

    Stocks
    DJIA

    COMP
    were higher in choppy trading Friday after Federal Reserve Chair Jerome Powell warned that the central bank may need to raise interest rates even higher to temper a strong U.S. economy and quell inflation, while assuring investors that the Fed would proceed cautiously.

    From MarketWatch’s archives (Dec. 31, 2022): U.S. stocks log their worst year since 2008, crushed by Fed’s rate hikes

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  • ‘Magnificent Seven’ stocks are losing some of their shine, but their bonds are doing fine

    ‘Magnificent Seven’ stocks are losing some of their shine, but their bonds are doing fine

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    The so-called Magnificent Seven grouping of technology stocks lost some of its luster this week after four of the seven moved into correction territory, meaning their stocks have fallen at least 10% from their recent peaks.

    The corporate-bond market, in contrast, seems to like all seven names.

    The group is made up of Facebook parent Meta Platforms Inc.
    META,
    -0.65%    ,
    Apple Inc.
    AAPL,
    +0.28%    ,
    Microsoft Corp.
    MSFT,
    -0.13%    ,
    Nvidia Corp.
    NVDA,
    -0.10%    ,
    Amazon. com Inc.
    AMZN,
    -0.57%    ,
    Google parent Alphabet Inc.
    GOOGL,
    -1.89%

    GOOG,
    -1.80%
    and Tesla Inc.
    TSLA,
    -1.70%    .

    One caveat: Tesla has no outstanding bonds. In the past, the electric-car maker issued convertible bonds, but they have all been converted into equity.

    The group is credited with helping drive the stock market’s gains in the first half of the year, driven by excitement about artificial intelligence. But the rally has stalled in recent weeks as investors have fretted over the potential for U.S. interest-rate increases, surging Treasury yields and China worries, with property developer Evergrande filing for U.S. bankruptcy protection late Thursday.

    On Thursday, Meta followed Apple, Microsoft and Nvidia into correction territory, as MarketWatch’s Emily Bary reported. Tesla, meanwhile, is in a bear market, meaning it’s down more than 20% from its recent peak.

    Read: Have AI stocks like Nvidia reached bubble territory? Here’s what history can tell us.

    The following series of charts from data-solutions provider BondCliQ Media Services show how many bonds each company has issued by maturity and how they have traded as the stocks have pulled back.

    The first chart shows that Microsoft has by far the most bonds, mostly in the 30-year bucket. The software and cloud giant has more than $50 billion in long-term debt, according to its 2023 10-K filing with the Securities and Exchange Commission.

    Outstanding Magnificent Seven debt by maturity bucket.


    Source: BondCliQ Media Services

    This chart shows trading volumes over the last 10 days, divided by trade type. The green shows customer buying, while the red is customer selling. The blue shows dealer-to-dealer flows. Microsoft, for example, has seen almost $1.3 billion in customer buying from dealers in the last 10 days and $960 million in customer sales to dealers.

    Magnificent Seven debt trading volumes (last 10 days).


    Source: BondCliQ Media Services

    This chart shows that every name in the group has enjoyed better net buying in the last 10 days, with Microsoft leading the way.

    Net customer flow of Magnificent Seven debt (last 10 days).


    Source: BondCliQ Media Services

    This chart shows spread performance over the last 50 days for an intermediate-term bond from each of the seven issuers. Most have tightened or remained steady over the period.

    Historical spread performance of Magnificent Seven debt.


    Source: BondCliQ Media Services

    Read also: Red flags waving for tech stocks as AI bounce fades, China fears escalate

    Apple’s stock entered correction Wednesday upon falling more than 10% from its July 31 peak of $196.45. The company sells mainly discretionary products, and right now “consumers are still being pinched” and thinking more carefully about where they spend their money, according to Matt Stucky, senior portfolio manager for equities at Northwestern Mutual Wealth Management.

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  • How much would a strike cost the Big Three automakers? Wall Street thinks it has an answer.

    How much would a strike cost the Big Three automakers? Wall Street thinks it has an answer.

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    Wall Street got busy Monday calculating the impact of a strike on the Big Three automakers amid increasingly fraught labor negotiations between union workers and companies, and a  “greater likelihood” of a walkout next month.

    Also on Monday, President Joe Biden weighed in, urging the United Auto Workers and Ford Motor Co.
    F,
    +0.49%    ,
    General Motors Co.
    GM,
    +0.53%
    and Stellantis NV
    STLA,

    to “to work together to forge a fair agreement.”

    Negotiations so far have been tense, and the contract expires in one month.

    Citi analyst Itay Michaeli estimated that a strike at GM lasting about two weeks impacting roughly about 100,000 vehicles would result in an impact of around $1.3 billion before interest and taxes; a five-week one, impacting about 280,000 vehicles, would result in a $3.4 billion impact EBIT. That would be a similar hit as GM’s 2019 strike, he said.

    Recent headlines are “pointing to increasingly challenging labor negotiations and a greater likelihood of a strike next month,” Michaeli said.

    A longer stoppage would result in shrinking dealer inventory and possibly start to impact sales sometime during the second half of October.

    For Ford, Michaeli calculated an impact of about $1.6 billion EBIT for a two-week strike affecting about 130,000 Ford vehicles, growing to $4 billion in the case of a five-week strike affecting 330,000 Ford cars and trucks. Like GM, sales would be hobbled roughly by mid-October in the case of a longer strike.

    “For both companies, the exact volume impact will in part depend on the extent of any Canada/Mexico downtime, and to that, GM appears somewhat better positioned than Ford due to GM’s higher exposure to Mexico production (including for pickup trucks) and other supply-chain considerations,” the analyst said in his note Monday.

    Both companies likely can keep their guidance intact in the case of a brief, one-week strike, but a strike beyond the two-week mark “likely triggers a [fiscal-year guidance] cut, though it would set 2024 up with reduced inventory and greater volume/price recovery prospects,” Michaeli said.

    A big question is whether a strike targets one specific automaker, as it was the case with GM in 2019, or all three at the same time — with more industry volume loss but also potentially a shorter strike, Michaeli said.

    “To that, Ford is generally viewed to be the least likely to be selected as a target,” he said.

    Deutsche Bank analyst Emmanuel Rosner said in his note Monday that he estimates an impact on earnings of about $400 million to $500 million for every week of production for each automaker, for a total of about $1.4 billion.

    GM’s 2019 strike lasted almost six weeks, with a loss of about $3.6 billion EBIT; GM North America lowered revenue estimates as nearly 300,000 fewer vehicles were delivered.

    Extrapolating the same $13,000 per unit in EBIT hit, Ford, GM and Stellantis could see [$550 million, $480 million, and $400 million] in weekly profit impact, reaching that $1.4 billion-a-week estimate, Rosner said.

    “In a bad-case scenario with 8 weeks of strike against all 3 automakers, which would bring the UAW strike fund to very low levels, this could cause $11.2 billion in lost profits for the [Detroit 3],” Rosner said. “While this is considerable, it would still be considerably less than the impact from the lifetime of the 4-year contract,” which would create “a permanent raise in the OEMs’ cost,” he said.

    The analyst also quantified the cost of UAW’s demands, focusing on the union’s “higher-probability asks” such as converting temporary employees into full-time workers, the elimination of a tiered-wage system, and about 40% base wage increase over the four years of the life of the contract. He left out “unlikely” to be met demands around pensions and post-retirement healthcare benefits.

    “Our analysis suggests accommodating these demands would likely constitute a large but not destructive headwind to OEMs’ earnings in year 1, with incremental costs stepping up even further in subsequent years,” Rosner said in the note.

    If these demands are granted with cost-of-living raises on top, Rosner estimated costs to all three automakers around $3.6 billion in the first year of the contract, amounting to $23 billion in total for the four years, “with highest hit to Stellantis, followed by GM and then Ford.”

    “Specifically, we estimate that the conversion of temporary employees to full-time workers would cost D3 a total of $1.4 billion, not yet factoring in wage increases, with the highest impact to Stellantis given the higher [percentage] of temporary employees used currently relative” to GM and Ford, the analyst said.

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  • Nvidia’s stock drops below key uptrend tracker, snapping longest streak above it in 6 years

    Nvidia’s stock drops below key uptrend tracker, snapping longest streak above it in 6 years

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    Nvidia Corp.’s stock chart now shows that the stunning uptrend investors in the semiconductor maker have enjoyed this year amid all the artificial-intelligence hype may have ended.

    But as history suggests, after a long uptrend, rather than a new downtrend, investors may have to endure some whipsaw action within a relatively static trading range over the next several months before the uptrend resumes.

    The stock
    NVDA,
    -0.72%
    slumped 4.7% on Wednesday to close at $425.54, which was 10.4% below the July 18 record close of $474.94, following a downbeat earnings report from Super Micro Computer Inc.
    SMCI,
    +3.47%    ,
    which counts Nvidia as a key supplier.

    Many on Wall Street believe a correction is defined by a decline of at least 10% to up to 20% from a significant recent peak. A drop of 20% or more is thought of as a bear market.

    But perhaps more important for chart followers, the stock closed below the widely followed 50-day moving average for the first time since Jan. 6, 2023. The 50-DMA had extended to $429.03 on Wednesday.


    FactSet, MarketWatch

    On Thursday, the stock bounced 0.5% in morning trading but held below the 50-DMA, which extended to $429.68, according to FactSet. Despite the recent correction, the stock was still up 192.6% year to date, while the PHLX Semiconductor Index
    SOX
    has climbed 43.7% and the S&P 500
    SPX
    has advanced 17.2%.

    Read: Nvidia is ‘domination’ and could unlock $300 billion in AI revenue by 2027, analyst says.

    The 50-DMA is used by many chart watchers as a short-term trend tracker. If the stock is above that line, it is viewed as being in an uptrend. The most time spent above that line, the stronger the uptrend.

    Until Wednesday, Nvidia’s stock closed above the 50-DMA for 146 consecutive trading sessions, according to FactSet data, which is the second-longest stretch since it went public in January 1999.

    The record stretch above the 50-DMA was 255 sessions, a streak that ended on Feb. 23, 2017, while the second-longest stretch of 143 sessions ended on Oct. 28, 2020.

    After the stock snapped the super-50-DMA streak in 2020, it waffled around the line and was little changed for the next several months before resuming the uptrend with a big spike.

    As an uptrend takes a several-month pause after the 50-DMA breaks, the 200-DMA becomes strong support.


    FactSet, MarketWatch

    As the chart above shows, after the 50-DMA broke, investors set their sights on the 200-DMA, which many view as a dividing line between longer-term uptrends and downtrends. In this case, despite a one-day dip below the 200-DMA in mid-March 2021, the line acted as strong support.

    And after the record super-50-DMA streak, the stock seesawed around the line, while having a slightly negative bias for the next few months, before the uptrend resumed in force.

    After the 50-DMA break, the 200-DMA was never threatened.


    FactSet, MarketWatch

    This time, the stock never really threatened the 200-DMA.

    In the current technical situation, one of the downside levels to keep an eye on is the bear-market threshold of 20% below the July closing high, which comes in at $379.95. Another level to watch is the 200-DMA, which currently extends to $269.63 and has been rising by $1.65 a day over the past 10 days.

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  • You can invest in market winners and still lose big. Here’s how to avoid the hit.

    You can invest in market winners and still lose big. Here’s how to avoid the hit.

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    Investors should think twice before picking an actively managed mutual fund according to its style category. By “style category,” I’m referring to the widely used method of grouping mutual funds according to the market-cap of the stocks they invest in and where those stocks stand on the spectrum of growth-to-value.

    This matrix traces to groundbreaking research in 1992 by University of Chicago professor Eugene Fama and Dartmouth College professor Ken French, and has since been popularized by investment researcher Morningstar in the form of its well-known style box.

    In urging you to think twice before picking a fund based on this matrix, I’m not questioning the existence of important distinctions between the various styles. Fama and French’s research convincingly showed that there are systematic differences between them. My point is that there also are huge differences within each style as well. You can pick a style that outperforms all others on Wall Street and still lose a lot of money, just as you can pick the worst-performing style and turn a huge profit.

    This points to the two types of risk you face when picking an actively managed fund. You have the risk associated with the fund’s style (category risk) and you also have the risk associated with the particular stocks that the fund’s manager selects (so-called idiosyncratic risk). Idiosyncratic risk often overwhelms category risk, especially over shorter periods.

    To illustrate, consider the midcap-growth style. As judged by the Vanguard Mid-Cap Growth ETF
    VOT,
    this style produced a 28.8% loss in 2022. Yet, according to Morningstar Direct, the best-performing actively managed midcap-growth fund last year produced a gain of 39.5%, while the worst performer lost 67.0%.

    This best-versus-worst performance spread of over 100 percentage points is illustrated in the accompanying chart. Notice that the comparable spread was almost as wide for many of the other styles as well. Though I haven’t done the research to compare 2022’s spreads with those of other calendar years, I have no reason to expect that they on average were any lower.

    “ The only way to eliminate idiosyncratic risk when investing in particular styles is to invest in an index fund.”

    The only way to eliminate idiosyncratic risk when investing in particular styles is to invest in an index fund benchmarked to the style in question. If you are enamored of a particular fund manager and willing to bet he will significantly outperform the category average, just know that you also incur the not-significant idiosyncratic risk that the fund will lag by a large amount.

    The bottom line? By investing in an actively managed fund in a style category, you will be incurring the risk not only of that category itself but also the not-insignificant idiosyncratic risk of that particular fund. Fasten your seatbelt if that’s the path you take.

    Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

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  • ‘The Fed will take comfort from moderating job growth’ — economists react to July’s employment report

    ‘The Fed will take comfort from moderating job growth’ — economists react to July’s employment report

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    The July jobs report on Friday showed the U.S. economy gained 187,000 jobs last month, with the unemployment rate dipping to 3.5% from 3.6%.

    Economists polled by The Wall Street Journal had expected an addition of 200,000 jobs and unemployment staying at 3.6%.

    See: U.S. adds 187,000 jobs in July

    Below are some initial reactions from economists and other analysts, including their views on what the jobs report means for the Federal Reserve as the central bank considers how to proceed with interest-rate hikes. U.S. stocks
    ES00,
    +0.48%

    SPX
    looked set to trade up modestly following the data on nonfarm payrolls.

    • “The Fed will take comfort from moderating job growth, but will continue to fret about the tight labor market. So far, the July employment and CPI reports are a wash for the Fed’s September 20 decision (we expect no change in rates), placing extra pressure on the August releases to add some clarity.” — Sal Guatieri, senior economist at BMO Capital Markets, in a tweet

    • “This month’s slow job growth is a sign the economy is continuing to cool; while a negative in some senses, this is a positive indicator for the Fed and may soon end its interest rate hikes. … Moving forward, we anticipate the unemployment rate will remain low.  We also expect unemployment will rise to its natural long-run rate of 4.5% over the next two years.” — Steve Rick, chief economist at TruStage, previously known as CUNA Mutual Group, in a note

    • “Since bad news is good news these days, Jay Powell will be smiling this morning, if not entirely happy. The below consensus reading in hiring in the July payrolls is the type of labor market softening the Fed is looking for. … But there were some more mixed elements in the report as well. The unemployment rate ticked down a notch to 3.5% and average nominal wages grew 0.4% for the second consecutive month. The Fed will continue to be looking for a broader set of data and will be focused on a further deceleration in prices before throwing in the towel for September.” — Ali Jaffery, economist at CIBC, in a note

    • “The wage data is stronger than the payroll data, suggesting that demand for labor is still robust, and that the slowing pace of hiring is more due to a lack of supply of labor. [Average hourly earnings] rose 0.4% in July, same as May and June. AHE Y/Y was steady at +4.4%. This, combined with the firmer household survey data, should keep the Fed on their toes for another rate hike as soon as next month, but the [consumer price index] data next week will have a big influence in that decision as well.” — Thomas Simons, U.S. economist at Jefferies, in a note

    • “If you were to write the script of what a soft landing looks like, this is it. Payrolls grew a strong +187k, signaling a slower yet still strong — and more sustainable —pace.” — Justin Wolfers, University of Michigan economics professor, in a tweet

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  • Tupperware stock skyrockets toward a record 450% gain in July

    Tupperware stock skyrockets toward a record 450% gain in July

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    Tupperware Brands Corp.’s stock skyrocketed Monday, and has more than tripled amid a four-day win streak, as the shares of the beleaguered maker of iconic food-storage containers continued their meteoric rally.

    The stock soared 44.5% in midday trading, to put it on track for the highest close since Feb. 3, 2023, and has rocketed 234.6% amid a four-day win streak.

    Monday’s rally adds to the stock’s 242.2% rally last week, which was the biggest one-week gain since it went public in May 1996.

    So far in July, it has blasted 456.4% higher, which would also be a monthly record. The previous record was the 224.8% gain seen in July 2020.

    Related: How ‘left-for-dead’ Tupperware became a buzzy trading play

    The stock’s historic rally kicked off after closing at a record low of 62 cents on July 18. The daily gains have been highlighted by the record 75.6% jump on July 24, despite no news being reported.

    Since the record low close, the stock has soared more than 7-fold (up 617.7%).

    Related: Tupperware’s market cap almost triples as stock continues to skyrocket


    FactSet, MarketWatch

    Amid its surging share price, the company’s market capitalization has reached $196.96 million. On July 7, when Tupperware said that it had entered a waiver agreement with some of its creditors, the company’s market cap hovered around $33 million.

    Tupperware’s recent trading activity is reminiscent of spikes in other names also recently seen as “left for dead,” as Samantha LaDuc, founder of LaDucTrading.com, put it to MarketWatch last week.

    The latest exchange data showed that short interest in Tupperware’s stock, or bearish bets made, had climbed to a three-year high of 9.69 million shares, which 27% of the public float, or shares readily available for the public to trade. Read more about short selling and how it works.

    In comparison with a stock that some say has been subject to a rally induced by bearish investors covering their short bets, often referred to as a “short squeeze,” Sirius XM Holdings Inc.’s
    SIRI,
    -0.20%
    short interest represented 30.8% of its public float.


    FactSet, MarketWatch

    In its preliminary full-year results reported in March, Tupperware sported an 18% sales decline compared with the prior year. Back then, Tupperware Chief Financial Officer Mariela Matute said in a statement that 2023 was expected to be a transition year for the company as it worked to stabilize its business and get on better financial footing.

    Related: Tupperware’s stock craters after food-storage company warns it may go bust

    The following month, Tupperware issued a going-concern warning, essentially cautioning that it could go bust. Tupperware also announced the hiring of financial advisers to help it navigate its near-term challenges.

    The company is projected to release its next quarterly report later this week, according to FactSet.

    Emily Bary, Claudia Assis and Tomi Kilgore contributed.

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  • August used to be the best month for the stock market. Then it became the worst.

    August used to be the best month for the stock market. Then it became the worst.

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    August the best month for average stock market performance? Or is it the worst?

    The answer depends on the period of stock-market history you examine. Over the 90 years from the Dow Jones Industrial Average’s
    DJIA,
    +0.50%
    inception in 1896 until 1986, August on average was far ahead of the other months — more than four times larger, as you can see from the table below. August outperformed the other months’ average by 1.4 percentage points. This difference is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.

    In the years since then, in contrast, August has been the worst month for the stock market, on average, lagging the other months’ average by 1.7 percentage points. Since 1986, in fact, August has been a worse month for the stock market than even September, whose reputation for stock market losses is widely known.

    August’s average DJIA return

    		 Average return of all other months

    		 August’s rank among all 12 months
    1896 to 1986

    		 +1.8%

    		 +0.4%

    		 1st
    After 1986

    		 -0.8%

    		 +0.9%

    		 12th

    If the 36 years since 1986 were all that statisticians had to go on, they would conclude that August’s underperformance was significant at the 95% confidence level — just the opposite of the conclusion that emerges from the 90 years prior. But when analyzing the Dow’s entire history since 1896, August’s performance is no better or worse than average.

    This August, in order to use history as a basis for investing, you’d first need to come up with a plausible explanation of what changed in the 1980s that caused August to swing from best to worst.

    Though I’m not aware of any such explanation, it’s always possible that one exists. To search for it, I analyzed monthly values back to 1900 for the Economic Policy Uncertainty (EPU) index that was created by Scott Baker of Northwestern University, Nicholas Bloom of Stanford University, and Steven Davis of the University of Chicago. We know from Finance 101 that the stock market responds to changes in economic uncertainty, so we’d be onto a possible explanation of August’s seasonal tendencies if the EPU underwent some fundamental change in 1986.

    But no such change shows up in the data. August’s average EPU level is no different than for any of the other months of the calendar, either before or after 1986.

    Another possible explanation might trace to investor sentiment. To investigate that possibility, I analyzed stock market timers’ average recommended equity exposure levels, as measured by the Hulbert Stock Newsletter Sentiment Index (HSNSI). I was looking to see if, after 1986, the HSNSI was significantly different at the beginning of August than in other months, on average. The answer is “no.”

    A plausible explanation might still exist for August’s change of fortune beginning in the mid-1980s, notwithstanding my inability to find one. But absent such an explanation, the most likely explanation is that it’s a random fluke.

    It would hardly be a surprise if randomness is the culprit. Most of the patterns that capture Wall Street’s attention are in fact nothing more than statistical noise. The reason we nevertheless insist that significant patterns exist is because — as numerous psychological studies have shown — we’re hardwired to find patterns even in randomness.

    That’s why your default reaction to all alleged patterns, not just those involving August, should be skepticism. The odds are overwhelming that they aren’t genuine. Only if those patterns can survive the scrutiny of a skeptical statistician should you even begin to be interested.

    Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

    More: Puzzled by the stock-market surge? Overshoots are the new normal, Bank of America strategist says

    Plus: Here’s how long the stock market rally may last

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  • Digital advertising is Meta and Google’s world, and everyone else is coping with it

    Digital advertising is Meta and Google’s world, and everyone else is coping with it

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    There are two certainties in the tech world when it comes to digital advertising: Google and Meta. And then there’s everyone else.

    Through economic thick and thin, Google and Meta are the gold standards by virtue of broad reach (billions of people globally), product dominance (in search and social media, respectively) and in their positions in the lightning-fast AI race. This week’s earnings results for Alphabet Inc.
    GOOGL,
    +2.46%

    GOOG,
    +2.42%
    and Meta Platforms Inc.
    META,
    +4.42%
    proved that emphatically once again.

    Both companies rebounded from recent wobbly digital ads sales of their own through gigantic consumer reach and aggressive plans to parlay AI into ad sales. Google has developed (or dabbled) in some form of AI for at least seven years, and in a conference call with analysts Wednesday, Meta Chief Executive Mark Zuckerberg said his company will focus in the near term on AI to develop agents, ad features in existing products like Instagram and Reels, and internal productivity and efficiency. “We want to scale them, but they are hard to forecast,” he admitted.

    Read more: Meta’s stock jumps after AI, ad momentum drive earnings and revenue higher

    And: Alphabet earnings push stock up 6%, fueled by strong ad sales and strides in AI

    Conversely, for companies consigned to the also-ran category, such as Snap Inc.
    SNAP,
    +3.39%
    and X — the former Twitter — the news was bleak. Snap forecast disappointing third-quarter sales amid a spending push to draw advertisers.

    “We continue to believe it will take multiple quarters of improved execution for many investors to get more comfortable with the story longer term,” JP Morgan analysts said in a note on Snap earlier this month.

    Digital-advertising leader Google sought to remind everyone it has been doing AI a long time while Microsoft Corp.
    MSFT,
    +2.31%    ,
    a major investor in ChatGPT pioneer OpenAI, tempered its approach, Josh Wetzel, chief revenue officer at OneSignal, said in an interview. “AI’s greatest immediate value may be for Facebook advertising,” he said, pointing to it as an efficient and effective tool after Facebook encountered issues with data-privacy changes Apple Inc.
    AAPL,
    +1.35%
    made to mobile devices.

    Read more: Alphabet earnings remind Wall Street of Google’s AI prowess

    “Meta’s solid quarter adds further evidence to the view that advertisers are choosing to spend their budget on the so-called market leaders, such as Facebook and Instagram, at the expense of the smaller social-media networks, like Snap,” said Jesse Cohen, senior analyst at Investing.com.

    Jon Oberlander, executive vice president of social at digital-marketing agency Tinuiti, added: “It is, to some extent, still Meta/Google’s game, especially for performance advertisers, as the ROI and scale advertisers can find in the mid-lower funnel gap above other platforms.”

    At the same time, Forrester analyst Kelsey Chickering said linear television ad revenue will slow between now and 2027 to about $65 billion from $70 billion as traditional TV continues to lose the under-25 crowd that has fled to streaming services and creator-heavy platforms like Snapchat and TikTok.

    Digital advertising is on track to grow in the high single digits, or more, in 2023, slightly ahead of June’s forecast estimates from GroupM and Magna of around 8% each, according to Brian Wieser, head of Madison and Wall, a media and advertising consultancy for investors.

    Most of that growth will benefit Google, Meta, and Microsoft’s LinkedIn, according to data from Emburse. Conversely, Emburse found ad spending on Twitter/X has plunged 54% from a year ago in May, before Elon Musk bought the company.

    “Google, Meta and LinkedIn are platforms where people go to consume information, search for ideas, or give context to what they experiencing in their personal or work lives,” Emburse Chief Experience Officer Johann Wrede said.

    While Alphabet CEO Sundar Pichai boasted Wednesday of “continued leadership in AI and our excellence in engineering and innovation are driving the next evolution of Search” and other services, as well as improved YouTube ad sales, Meta’s addition of potential X-killer Threads could dramatically inflate its ad sales going forward.

    Zuckerberg sees potential in Threads long term despite a plunge in its user sign-ups because X is hemorrhaging advertising clients, and this week reportedly slashed ad costs to lure business customers.

    “The launch of Threads holds great promise for Meta. While there are currently no ads on the app, it’s inevitable that they will come and the ability to use data from other Meta properties for targeting is a highly lucrative proposition for brands,” Aaron Goldman, chief marketing officer at Mediaocean, said in an email.

    That translates to more near-term pain for smaller platforms such as Snap and X, which are posting negative growth, Michael Nathanson of SVB MoffettNathanson warned in a note Wednesday.

    “The truth is that Alphabet started integrating machine learning and artificial intelligence into their products and ad solutions close to a decade ago,” he said. Snap and others are scrambling to catch up.

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  • Banc of California is expected to keep leading regional banks higher as PacWest deal ignites sector

    Banc of California is expected to keep leading regional banks higher as PacWest deal ignites sector

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    Banc of California Inc.’s proposed agreement to acquire PacWest Bancorp. helped send regional-bank stocks considerably higher on Wednesday. But even after a two-day increase of 12% for its shares, the acquiring bank remains the favorite name among analysts covering regional players in the U.S.

    The merger agreement was announced after the market close on Tuesday, but the rumor mill had already sent Banc of California’s
    BANC,
    +0.62%
    stock up by 11% that day. Then on Wednesday, shares of PacWest Bancorp
    PACW,
    +26.92%
    shot up 27% to $9.76, which was above the estimated takeout value of $9.60 a share when the deal was announced. The merger deal, if approved by both banks’ shareholders, will also include a $400 million investment from Warburg Pincus LLC and Centerbridge Partners L.P.

    A screen of regional banks by rating and stock-price target is below.

    Deal coverage:

    With PacWest closing above the initial per-share deal valuation, it is fair to wonder whether or not its shareholders will vote to approve the agreement. In a note to clients on Wednesday, Wedbush analyst David Chiaverini called Banc of California’s offer “fair, but not overwhelmingly attractive,” and wrote that PacWest was “a likely seller before the mini banking crisis occurred in March.”

    While Chiaverini went on to predict the deal’s approval by PacWest’s shareholders, he added that he “wouldn’t be surprised if there were some dissent among a minority of shareholders [which could] possibly open the door to the potential emergence of a third-party bid.”

    More broadly, Odeon Capital analyst Dick Bove wrote to clients on Wednesday that the merger deal, along with increasing involvement of private-equity firms in lending businesses, the expected enhancement of regulatory capital requirements for banks and other factors could lead to more consolidation among smaller banks.

    He went on to write that we might be entering a period for the banking industry similar to the 1990s, “when rules were being changed and acquisitions were rampant,” which “created new investment opportunities.”

    The SPDR S&P Regional Banking exchange-traded fund
    KRE,
    +4.74%
    rose 5% on Wednesday but was still down 17% for 2023, while the SPDR S&P 500 ETF Trust
    SPY,
    +0.02%
    was up 19%, both excluding dividends.

    KRE holds 139 stocks, with 98 covered by at least five analysts working for brokerage firms polled by FactSet. Out of those 98 banks, 45 have majority “buy” ratings among the analysts. Among those 45, here are the 10 with the most upside potential over the next 12 months, implied by consensus price targets:

    Bank

    		 Ticker

    		 City

    		 Total assets ($mil)

    		 July 26 price change

    		 Share buy ratings

    		 July 26 closing price

    		 Consensus price target

    		 Implied 12-month upside potential
    Banc of California Inc.

    		 BANC,
    +0.62%         		Santa Ana, Calif.

    		 $9,370

    		 1%

    		 71%

    		 $14.71

    		 $18.58

    		 26%
    Enterprise Financial Services Corp.

    		 EFSC,
    +1.83%         		Clayton, Mo.

    		 $13,871

    		 2%

    		 80%

    		 $41.75

    		 $49.25

    		 18%
    First Merchants Corp.

    		 FRME,
    +3.52%         		Muncie, Ind.

    		 $17,968

    		 4%

    		 100%

    		 $32.38

    		 $37.33

    		 15%
    Amerant Bancorp Inc. Class A

    		 AMTB,
    +3.47%         		Coral Gables, Fla.

    		 $9,520

    		 3%

    		 60%

    		 $20.26

    		 $23.30

    		 15%
    Old Second Bancorp Inc.

    		 OSBC,
    +3.39%         		Aurora, Ill.

    		 $5,884

    		 3%

    		 100%

    		 $16.15

    		 $18.50

    		 15%
    F.N.B. Corp.

    		 FNB,
    +2.87%         		Pittsburgh

    		 $44,778

    		 3%

    		 75%

    		 $12.91

    		 $14.50

    		 12%
    Columbia Banking System Inc.

    		 COLB,
    +3.95%         		Tacoma, Wash.

    		 $53,592

    		 4%

    		 55%

    		 $22.63

    		 $25.32

    		 12%
    Wintrust Financial Corp.

    		 WTFC,
    +3.43%         		Rosemont, Ill.

    		 $54,286

    		 3%

    		 92%

    		 $86.05

    		 $95.33

    		 11%
    Synovus Financial Corp.

    		 SNV,
    +6.01%         		Columbus, Ga.

    		 $60,656

    		 6%

    		 75%

    		 $34.06

    		 $37.73

    		 11%
    Home BancShares Inc.

    		 HOMB,
    +4.56%         		Conway, Ark.

    		 $22,126

    		 5%

    		 57%

    		 $24.09

    		 $26.67

    		 11%
    Source: FactSet

    Click on the tickers for more about each bank.

    Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

    Any stock screen can only be a starting point when considering whether or not to invest. If you see any stocks of interest here, you should do your own research to form your own opinion.

    Don’t miss: How you can profit in the stock market from an incredible financial-services trend over the next 20 years

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  • ‘Oppenheimer’ gives stock investors another reason to be bullish about nuclear energy

    ‘Oppenheimer’ gives stock investors another reason to be bullish about nuclear energy

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    One of the hottest movies of the summer is the staggeringly good biopic “Oppenheimer,” about the man who oversaw the frantic race to develop the atomic bomb during World War II. 

    The atom bomb dropped on Hiroshima, Japan on Aug 6, 1945 was a fission-style device. This also happens to be the same basic physics behind nuclear reactors that are in use today. It’s a reminder that technology can be, at its essence, agnostic: Whether it is used for malevolent or benevolent purposes (in nuclear fission’s instance, an instrument of death or clean, carbon-free electricity) depends upon the intent of the user. 

    Fission reactors generate about 10% of the world’s electricity today. The United States gets even more of its electricity this way, about a fifth.

    These percentages are likely to rise as global demand for electricity — and concerns about global warming and climate change — rise. This will present opportunities for long-term oriented investors. The lion’s share of this demand — about 70%, says the Paris-based International Energy Agency (IEA), will come from India, which the United Nations says is now the world’s most populous country, China, and Southeast Asia. Put another way, “the world’s growing demand for electricity is set to accelerate, adding more than double Japan’s current electricity consumption over the next three years,” says Fatih Birol, the IEA’s executive director.

    While fossil fuels remain the dominant source of electricity generation worldwide — the Central Intelligence Agency estimates that it provides about 70% of America’s electricity, 71% of India’s and 62% of China’s, for example—the IEA report says future demand will be met almost exclusively from two sources: renewables and nuclear power. “We are close to a tipping point for power sector emissions,” the IEA says. “Governments now need to enable low-emissions sources to grow even faster and drive down emissions so that the world can ensure secure electricity supplies while reaching climate goals.”

    “ The Biden administration is a big booster of nuclear energy. ”

    It’s helpful that the Biden administration is a big booster of nuclear energy, which the White House sees as an integral part of its broader effort to move the U.S. economy away from fossil fuels. The Department of Energy says that the country’s 93 reactors generate more than half of America’s carbon-free electricity. But price pressures from wind, solar and natural gas (which the feds call “relatively clean” even though it emits about 60% of coal’s carbon levels) have putseveral reactors out of business in recent years. 

    The bipartisan infrastructure bill that Biden signed into law in November 2021 includes $6 billion, spread out over several years, for the so-called Civil Nuclear Credit Program, designed to keep reactors — and the high-paying jobs that come with them — running. If a plant were to close, it would “result in an increase in air pollutants because other types of power plants with higher air pollutants typically fill the void left by nuclear facilities,” the administration says. U.S. Energy Secretary Jennifer Granholm has said the Biden administration is “using every tool available” to get the country powered by clean energy by 2035.

    The private sector is beginning to stir. Last week, Maryland-based X-Energy said it would build up to 12 reactors in Central Washington state, for Energy Northwest, a public utility. These wouldn’t be the behemoth-type reactors we’re used to seeing, but “advanced small, nuclear reactors.” X-Energy, which is privately held,  has also been selected by Dow
    DOW,
    -1.40%
    to construct a similar facility in Texas.  

    Other companies are also rolling out new technology to meet demand. Nuclear fusion — a breakthrough in that it creates more energy than the Oppenheimer-era fission model and at a lower cost — is likely to be the basis for reactors in the years ahead; the Washington, D.C.-based Fusion Industry Association thinks the first fusion power plant could come online by 2030. After seven rounds of funding, one fusion company, Seattle-based Helion Energy, is currently valued at around $3.6 billion, and appears headed for a public offering.    

    Here too, the Biden administration is getting involved. In May, the Department of Energy announced $46 million in funding for eight other fusion companies. “We have generated energy by drawing power from the sun above us. Fusion offers the potential to create the power of the sun right here on Earth,” says Granholm.  

    There are several opportunities here for long-term investors. You can pick your way through any number of publicly held companies, including more traditional utilities, or spread your bet across the industry through a handful of exchange-traded funds. The largest of these is the Global X Uranium Fund
    URA,
    +0.78%    ,
    with about $1.6 billion in assets. It’s up about 9% year-to-date. The VanEck Uranium + Nuclear Energy Fund
    NLR,
    +0.41%
     is up almost 10% and sports a 1.8% dividend yield. These are respectable year-t0-date returns, even though they lag the S&P 500
    SPX,
    +0.32%
    (up close to 19%) by a wide margin. 

    More: Net-zero by 2050: Will it be costly to decarbonize the global economy?

    Also read: Fukushima’s disaster led to a “lost decade” for nuclear markets. Russia, low carbon goals help stage a comeback.

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  • Here’s why Wall Street has fallen out of love with Tesla — for now

    Here’s why Wall Street has fallen out of love with Tesla — for now

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    Late on Wednesday, Tesla Inc.
    TSLA,
    -1.10%
    reported that quarterly sales were up 47% from a year earlier. But the stock tumbled 10% on Thursday.

    Tesla’s shares are still up 113% this year. The company is among a group of 13 in the S&P 500 that stand out with high growth expectations for sales, earnings and free cash flow through 2025.

    But less than half of analysts polled by FactSet rate Tesla a buy. Emily Bary explains what they are worried about.

    Traders have placed large short bets against Tesla and two of its rival EV makers — Rivian Automotive Inc.
    RIVN,
    -2.09%
    and Nio Inc.
    NIO,
    +2.52%    .
    Claudia Assis looks into how well those trades have been working out.

    Cody Willard explains why he remains confident that Tesla and Rivian will dominate the EV market over the long term.

    Related coverage:

    Here’s what may propel U.S. stocks for years.

    Chipotle Mexican Grill is among 14 stocks named by Michael Brush for consideration by investors looking to ride along with long-term improvement of U.S. labor productivity.


    AP

    The S&P 500
    SPX,
    +0.03%
    has returned 19% this year, following its 18% decline in 2022. On the same basis, with dividends reinvested, the benchmark index is still down 2% since the end of 2021.

    What is going on? Michael Brush believes that a high level of corporate investment in new technology and equipment is setting the stage for a long phase of earnings growth for U.S. companies. He shares four developments behind the coming productivity boom and 14 stocks expected to benefit from it.

    A signal for the stock-market’s health


    Getty Images

    The Dow Jones Industrial Average
    DJIA,
    +0.01%
    is up 6% this year. The venerable index has trailed the S&P 500, but its closing level of 35,255.18 on Thursday was only 4% shy of its record close a 36,799.65 on Jan. 4, 2022. Joseph Adinolfi explains Dow Theory, which according to technical analysts is sending a strong bullish signal for the stock market.

    Other opinions about market sentiment:

    Even if you have resisted the idea of a Roth IRA, you may soon be forced to have one

    This year if you are age 50 or older and are already maxing-out your contribution to a 401(K), 403(B) or other qualified employer-sponsored tax-deferred retirement plan at $22,500, you can make an additional “catch up” tax deductible contribution of $7,500 for a total of $30,000. But starting in 2024, the catch up contribution will no longer be tax deductible if you earn at least $145,000 a year. You can still make the contribution with after-tax money into a Roth 401(K) account that your plan administrator may already have set up for you.

    Alessandra Malito provides more details and news about employers’ efforts to delay the rule’s implementation.

    Beth Pinker writes the Fix My Portfolio column. This week she digs into Roth IRA conversions, through which you can simplify your taxes down the line.

    A hot vote in Spain

    The center of Madrid on July 15, 2023. A brutal heat wave could affect turnout for the country’s general election on July 23.


    Uncredited

    Barbara Kollmeyer reports from Spain about a highly contested election on Sunday, with controversy over the government’s policies during the pandemic, parties’ social policies and the possibility of a coalition government that might rattle financial markets.

    Meta vs. Alphabet

    Shares of Meta Platforms Inc. and Alphabet Inc. trade only slightly higher than the S&P 500 on a forward price-to-earnings bases, while Nvidia Corp., Microsoft Corp. and Apple Inc. trade much higher.


    FactSet

    Leslie Albrecht looks at Meta Platforms Inc.
    META,
    -2.73%    ,
    which is Facebook’s holding company and has a hit on its hands with the new Threads social-media platform, and Google holding company Alphabet Inc.
    GOOGL,
    +0.69%    ,
    to consider which stock is a better buy.

    Brett Arends: ‘I used to work at Nvidia. The stock I got is now half my portfolio. Should I sell?’

    The Ratings Game

    In The Ratings Game column, MarketWatch reporters track analysts’ thoughts about various stocks. Here’s a sampling of this week’s coverage:

    You don’t know every bad factor causing air travel to be nothing but harassment

    Getting there is half the fun.


    Getty Images

    The U.S. flying scene — from shortages of equipment and labor (and runways) to ill-staffed air-traffic control towers — is a well-known nightmare for U.S. travelers. But there is more to the story. Jeremy Binckes looks into other factors that may surprise you and cause great inconvenience this summer.

    The Federal Reserve is expected to raise interest rates again next week

    The Federal Open Market Committee will meet next Tuesday and Wednesday, to be immediately followed by a policy announcement. Economists expect the central to raise the federal-funds rate by another quarter point. The question is whether or not this will end the Fed’s inflation-fighting rate cycle.

    More coverage of the Fed:

    How much would you pay for 100% downside protection in the stock market?


    MarketWatch illustration/iStockphoto

    Over the past 30 years, the SPDR S&P 500 ETF Trust
    SPY,

    has returned 1,650%, for an average annual return of 10%, with dividends reinvested, according to FactSet. But it hasn’t been a smooth ride. The ETF, which tracks the benchmark S&P 500, fell 18% last year and 37% during 2008, for example. And there have been even larger declines if the analysis isn’t confined to calendar years.

    But can you ride through market declines? Many studies have shown that most investors who try to time the market sell after a decline has started and buy back in well after a recovery is under way, which means their long-term performance can suffer significantly.

    In this week’s ETF Wrap column (and emailed newsletter), Isabel Wang describes a new buffered fund that can give you 100% downside protection over a two-year period, in return for a cap on your potential gains in the stock market. Here’s the price you would pay for the protection.

    The World Cup games have started

    Hannah Wilkinson scored the home team’s first goal against Norway during the first World Cup game in Auckland, New Zealand, on July 20.


    Getty Images

    The Women’s World Cup began Thursday with an upset victory by New Zealand over Norway.

    James Rogers reports on what is expected to be a much easier environment for FIFA and corporate sponsors than that of last year’s Men’s World Cup in Qatar.

    U.S. Soccer Federation President Cindy Parlow Cone participated in MarketWatch’s Best New Ideas in Money podcast and spoke about the long-term effort to achieve equal treatment for women soccer players.

    More coverage of the World Cup:

    Want more from MarketWatch? Sign up for this and other newsletters to get the latest news and advice on personal finance and investing.

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  • Bud Light sales are still falling, but investors get it at this point. Here’s what Morgan Stanley says they might be missing.

    Bud Light sales are still falling, but investors get it at this point. Here’s what Morgan Stanley says they might be missing.

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    Bud Light sales are still falling, as the impact of a boycott against the beer continues to stick. But Morgan Stanley analysts on Thursday said that impact was already reflected into shares of its parent company, Anheuser-Busch InBev, and that AB-InBev’s global footprint and the falling costs of beer ingredients would help sales and margins up ahead even if struggles in the U.S. spill over into next year.

    Morgan Stanley assumed coverage of AB-InBev
    BUD,
    +0.51%
    with an overweight rating, a step up from its prior equal-weight rating. The firm bumped its price target on the stock higher, to $68.50 from $64. Shares of AB-InBev were up 0.4% on Thursday.

    The analysts also said that AB-InBev’s second-quarter results, set for Aug. 2, could be a clarifying moment for investors.

    “While investors are currently sitting on the sidelines, waiting for the company to fully quantify the impact of the Bud Light situation, we see upcoming H1 results as likely timing for such clarification,” the analysts said in a research note.

    “We think ABI shares now price in the U.S. Bud Light challenges, which have stabilised, but not the gross margin recovery and de-leveraging upside into next year,” they added later.

    The conservative-led boycott against Bud Light began in April, after the brand briefly partnered with Dylan Mulvaney, a trans influencer. That anti-trans anger has translated into weeks of sharp declines, generally above 20%, for Bud Light sales. Mulvaney said Bud Light never reached out to her, despite what she said was “more bullying and transphobia than I could have ever imagined” as a result of the partnership and calls for a boycott.

    The fall-off has spread to some of other AB-InBev’s other beer brands, and benefited its rivals. Modelo Especial has recently dethroned Bud Light as the best-selling beer in the U.S.. Constellation Brands Inc.
    STZ,
    +0.47%
    sells Modelo beer in the U.S., after a deal a decade ago to acquire Grupo Modelo’s U.S. beer business from AB-InBev.

    Still, the Morgan Stanley analysts emphasized Anheuser-Busch’s worldwide reach, and said that even a 13.5% drop in U.S. yearly sales — broadly, where things stand in the U.S. now — would only mean a 4% drop for the company’s sales overall. And they said double-digit growth expected elsewhere, in regions like South America and the Asia-Pacific, would drive organic sales growth of 6% for the company overall in its fiscal 2023. They also said a “wind-back” on commodity costs and sales incentives to U.S. beer sellers would help margins up ahead.

    Still, they didn’t expect much of a break for sales trends in the U.S. They said they expected the 13.5% drop in U.S. sales to ease to a 12% drop in AB-InBev’s fiscal 2024.

    Overall, however, the analysts were upbeat on beer sales and profits for next year. Falling ingredient costs would help brewers overall. A pandemic-era jump in U.S. demand for spirits — or hard liquor like gin, Scotch and vodka — had now “normalized,” they said.

    Shares of Anhueser-Busch InBev are down 1.4% so far this year. By comparison, the S&P 500 Index
    SPX,
    -0.68%
    is up 18.9% over that period.

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  • AT&T’s stock sinks toward 30-year low as it nabs another downgrade

    AT&T’s stock sinks toward 30-year low as it nabs another downgrade

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    Shares of AT&T Inc. were falling again Monday after a Citi Research analyst weighed in with a more cautious view in light of recent reporting on legacy use of lead-sheathed cables within the telecommunications industry.

    Citi’s Michael Rollins cut his rating on AT&T’s stock
    T,
    -6.69%
    to neutral from buy Monday, writing that it was among names that could see an “overhang” following The Wall Street Journal’s recent reporting on risks related to industry’s historical use of lead-sheathed cabling as Wall Street works to understand potential financial implications.

    He also downgraded shares of Frontier Communications Parent Inc.
    FYBR,
    -15.79%
    and Telephone & Data Systems Inc.
    TDS,
    -8.38%
    to neutral from buy, and he already had a neutral rating on Verizon Communications Inc.’s stock
    VZ,
    -7.50%    .

    “First, copper network deployed with possible lead sheathing could be a significant percentage of the legacy network deployed nationally with varying exposures for each firm,” Rollins wrote. He said he was “unable to specifically quantify financial risks (if anything material)” for wireline telecommunications companies stemming from these issues, though “the timing to receive more information could take at least a couple months and full resolution could take years.”

    AT&T’s stock was off 3.8% in Monday morning action, to a recent $13.95, and on track to close at its lowest level since March 24, 1993, according to Dow Jones Market Data. The stock is on pace to spend a ninth-straight session without a daily gain, factoring in one day of flat performance last week alongside a string of daily losses.

    “We still expect the company to display forward progress on cash flow generation and setting the stage to reduce net debt leverage over the next two years before considering any potential liabilities, if anything material, associated with lead sheathed cables,” Rollins wrote, though he called out “uncertainty from the industry’s use of lead-sheathed cabling” as a key reason for the downgrade.

    See also: AT&T sees ‘incredibly healthy’ wireless market, even as several factors will ding growth this quarter

    Frontier shares were down 8.2%, while TDS shares were off 5.0%. Verizon’s stock was down 1.6% and on pace for its eighth consecutive losing session.

    USTelecom, a trade association that counts AT&T and Verizon as members, said in a statement that the telecommunications industry “has a long tradition of closely following science and evidence as it relates to public health, environmental protection, and worker safety issues,” while “safe work practices within the industry have proven effective in reducing potential lead exposures to workers.”

    There are “many considerations” that go into deciding whether to remove legacy cables, “including those regarding the safety of workers who must handle the cables, potential impacts on the environment, the age and composition of the cables, their geographic location, and customer needs as well as the needs of the business and infrastructure demands,” the spokesperson continued.

    The trade group said in a prior statement that it had “not seen, nor have regulators identified, evidence that legacy lead-sheathed telecom cables are a leading cause of lead exposure or the cause of a public health issue.”

    Representatives from Frontier and TDS couldn’t immediately be reached for comment.

    Rollins noted in his report that “Verizon and AT&T indicated their expectation as that the exposure should be small,” though he said that “for Verizon, we learned the term ‘small’ could be as much as 20% of its copper network infrastructure.”

    Don’t miss: Verizon CEO says the wireless market isn’t such a bad business after all

    He joined JPMorgan’s Philip Cusick, who downgraded AT&T’s stock Friday and mentioned potential lead-cable liabilities as a concern.

    SVB MoffettNathanson analyst Craig Moffett weighed in on the issue as well Monday, calling out heavy uncertainty.

    “The unsatisfying, but honest, answer is that at this point we have nothing but unknowns to work with and no real way to quantify the companies’ exposures,” he wrote. “Lead risk is clearly not a good thing, but we don’t know how bad it will ultimately be. It would be disingenuous to try putting firm numbers around it.”

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  • Rivian stock falls with Tesla’s Cybertruck seen as ‘fundamental and headline risk’

    Rivian stock falls with Tesla’s Cybertruck seen as ‘fundamental and headline risk’

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    Shares of Rivian Automotive Inc. were being driven toward a third-straight loss Monday, after Tesla Inc.’s first Cybertruck was rolled off the assembly line over the weekend.

    “We see competitive pricing and specs for the Cybertruck as a fundamental and headline risk to [Rivian],” wrote Baird analyst Ben Kallo in a note to clients.

    Rivian’s stock
    RIVN,
    -3.25%
    dropped 2.5% in premarket trading. It has shed 4.2% over the past two sessions, after closing July 12 at a seven-month high.

    Tesla shares
    TSLA,
    +3.38%
    gained 2.0%, putting them on track to open at a 10-month high.

    Rivian’s R1T electric truck has a starting price of $73,000 and the R1S sport-utility vehicle (SUV) starts at $78,000, while reports have the Cybertruck starting at around $40,000.

    Tesla Chief Executive Elon Musk said in early 2023 that volume production of the Cybertruck would start in 2024. The Cybertruck was first unveiled in 2019, but faced a number of production delays since then.

    Meanwhile, Baird’s Kallo also said despite Rivian’s (RIVN) strong second-quarter deliveries report, he was “cautious” about Rivian’s stock ahead of second-quarter results, which are due out Aug. 8, given concerns over the costs of the development of the electric vehicle maker’s Georgia facility.

    “As both a positive and a negative, RIVN will need to raise capital in the near to medium term in order to fund the project and note that the recent stock appreciation may create an attractive opportunity for RIVN to execute an equity raise,” Baird wrote.

    Rivian’s stock has run up 80.8% over the past three months through Friday, while Tesla’s stock has run up 50.4% and the S&P 500 index
    SPX,
    +0.07%
    has gained 7.1%.

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  • Should Twitter have rejected Musk’s offer and remained publicly traded?

    Should Twitter have rejected Musk’s offer and remained publicly traded?

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    Would Twitter have been better off to remain a public company rather than be taken private by Elon Musk?

    We’ll never know for sure, of course. But it’s hard to imagine that it would have performed any worse. Twitter as a private company is hemorrhaging advertisers, and according to a recent Fidelity analysis its market value is down nearly two-thirds from the $44 billion Musk paid for it.

    Grading Twitter’s performance as a private company is more than an idle armchair exercise. It goes to the heart of an age-old debate over whether companies can be more profitably managed when private rather than public. The private equity (PE) industry not surprisingly claims that its approach is superior, and much of Wall Street agrees since many PE firms have produced impressive long-term returns.

    The industry’s claims are not devoid of dissenters. Consider a recent study from Verdad Capital entitled “Private Equity Operational Improvements.” It was conducted by Minje Kwun of Dartmouth College and Lila Alloula of Yale University.

    In order to overcome the otherwise insuperable obstacle of being unable to measure how private companies are performing, the researchers focused on a subset of leveraged buyouts (LBOs) from 1996 to 2021 in which the private equity firms issued public debt. In order to sell debt to the public, of course, the PE firms had to issue financial statements publicly, and that enabled the researchers to analyze the LBOs’ performance after going private, relative to public companies in the same industry sector.

    Kwun and Alloula focused on six indicators of financial performance: Revenue growth, EBITDA margin, capital expenditures as a percentage of sales, and the ratios of gross profit to total assets, EBITDA to total assets, and debt to EBITDA. (EBITDA, of course, refers to Earnings Before Interest, Taxes, Depreciation and Amortization.)

    Relative to public companies in the same sector over the three years after going private, LBOs on average did not show any operational improvement along these six dimensions. The researchers conclude: “The [private equity] industry mythology of savvy and efficient operators streamlining operations and directing strategy to increase growth just isn’t supported by data.”

    Their results are consistent with those of a near-decade ago study by Jonathan Cohn and Lillian Mills of the University of Texas and Erin Towery of the University of Georgia. They used a different technique to access the otherwise inaccessible financial data of newly-private companies: Their tax returns. The professors focused on the operating performance of a sample of companies that had gone private between 1995 and 2007, comparing them to otherwise-similar companies that remained public. On average over the three years after going private, the researchers found, the private companies performed no better than the public ones.

    The source of PE’s industry high returns

    What, then, is the source of the increased return that the private equity industry often produces? The answer appears to be increased leverage. Leverage increases returns on the upside, even if it magnifies losses on the downside. Leverage has worked to the PE industry’s advantage over the last several decades since public markets have on balance have risen significantly.

    Notice that increasing leverage requires no particular management expertise or shrewd strategic planning. In principle it’s no more difficult than you or me purchasing stock on margin.

    These studies are not the final word on the subject. Some other studies, using alternate methodologies, have found some operational improvement at companies after being taken private. If different methodologies can reach such different conclusions, however, that would suggest that the benefits of going private are not as obvious and overwhelming as the private equity industry would have us believe.

    At a minimum, Kwun and Alloula argue, we should be skeptical “of any claims of operational improvements being a major contributor to PE’s performance relative to public markets.”

    Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

    More: These 5 fast-growing stocks pay generous dividends you can count on

    Also read: Top investment newsletters are down on tech, Tesla and Meta Platforms. Here’s what they like.

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  • Worried that stocks are too expensive? This value approach can highlight bargains.

    Worried that stocks are too expensive? This value approach can highlight bargains.

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    At a time when many investors seem euphoric, others are warning that stock valuations have once again turned frothy. It may pay to take a look back at valuation and performance and consider your own risk tolerance.

    A value-based approach that offers lower volatility and good long-term returns can be expected to be less flashy than one focused on the hottest technology stocks. But depending on how much it bothers you when the stock market gyrates, it may be a better way for you to invest. Lower volatility might help you to avoid the type of emotional reaction that can lead to selling into a declining market or attempting to time the market, both of which tend to be losing strategies.

    Aaron Dunn is a co-head of the value equity team at Eaton Vance, which is based in Boston and is a unit of Morgan Stanley. During an interview, he explained how he and Brad Galko, who co-heads the team, select stocks for the Eaton Vance Focused Value Opportunities Fund. The fund’s performance benchmark is the Russell 1000 Value Index
    RLV,
    +1.08%    .

    First, let’s take a broad look at how aggregate forward price-to-earnings ratios have moved for exchange-traded funds tracking several broad indexes over the past 10 years:


    FactSet

    The valuations are lower than their 2020 peaks. But for all but one, the valuations still appear to be high when compared with their 10-year averages:

    ETF

    		 Ticker

    		 Current forward P/E

    		 10-year average forward P/E

    		 Current valuation to 10-year average
    SPDR S&P 500 ETF Trust

    		 SPY,
    +0.64%         		19.06

    		 15.93

    		 120%
    iShares Russell 1000 ETF

    		 IWB,
    +0.80%         		18.94

    		 16.02

    		 118%
    iShares Russell 1000 Value ETF

    		 IWD,
    +1.07%         		14.33

    		 13.94

    		 103%
    iShares Russell 1000 Growth ETF

    		 IWF,
    +0.50%         		26.63

    		 19.00

    		 140%
    Source: FactSet

    All of the listed ETFs listed here are trading well above their 10-year average P/E valuations except the iShares Russell 1000 Value ETF, which is only slightly higher. These numbers back the notion that the broad market is expensive and that a value approach may be more reasonable. It is also worth keeping in mind that during 2022, when the SPDR S&P 500 ETF Trust
    SPY,
    +0.64%
    declined 18.2% and the iShares Russell 1000 ETF
    IWB,
    +0.80%
    fell 19.2%, the iShares Russell 1000 Value ETF
    IWD,
    +1.07%
    pulled back 7.7% and the Eaton Vance Focused Value Opportunity Fund’s Class I shares were down only 3.3%, all with dividends reinvested.

    If we look at 10-year total returns, the nonvalue indexes, so heavily weighted to the largest technology-oriented companies, have been excellent performers for investors who could remain committed through thick and thin:


    FactSet

    Fund

    		 Ticker

    		 3-year average annual return

    		 5-year average annual return

    		 10-year average annual return
    SPDR S&P 500 ETF Trust

    		 SPY,
    +0.64%         		13.2%

    		 11.4%

    		 12.3%
    iShares Russell 1000 ETF

    		 IWB,
    +0.80%         		12.5%

    		 11.0%

    		 12.1%
    iShares Russell 1000 Growth ETF

    		 IWF,
    +0.50%         		11.2%

    		 14.0%

    		 15.0%
    iShares Russell 1000 Value ETF

    		 IWD,
    +1.07%         		13.7%

    		 7.3%

    		 8.7%
    Eaton Vance Value Opportunities Fund – Class I

    		 EIFVX,
    +0.92%         		14.8%

    		 8.7%

    		 9.7%
    Source: FactSet

    For five and 10 years, the growth-oriented approaches have shined. But for three years, which includes the 2022 disruption, the Eaton Vance Value Opportunities Fund has fared best, even outperforming its benchmark.

    A selective approach to value

    The Eaton Vance Focused Value Opportunity Fund’s Class I
    EIFVX,
    +0.92%
    shares are rated four stars (out of five) within Morningstar’s Large Value fund category. The fund’s Class A
    EAFVX,
    +0.93%
    shares are rated three stars. The difference is that the Class I shares, which are typically distributed through investment advisers, have annual expenses of 0.74% of assets under management, while the Class A shares have an expense ratio of 0.99%. You can purchase Class I shares directly through brokerage platforms for a $50 fee.

    Dunn said that when selecting stocks for the fund, he and Galko take a bottom-up approach to identify quality companies. The want to see high returns on invested capital (ROIC) over the long term, as well as a “good competitive position” for a company and a strong management team.

    They also prefer companies with low debt. “We do not want to buy overlevered companies and be in a situation where we are diluting through equity raises and putting capital at risk,” he said.

    Dunn added that he and Galko look closely at free cash flow generation. A company’s free cash flow is its remaining cash flow after capital expenditures. This is money that can be used to fund expansion, acquisitions, dividend increases or share buybacks, or for other corporate purposes.

    “Philosophically, what this results in is that we hold up well in markets such as last year’s. And we find upside in stocks trading below intrinsic value,” he said.

    “We focus on finding ideas where there is a good skew for upside relative to downside,” he added.

    According to Morningstar, the fund’s active share when compared with IWD is high, at 91.45%. Active share is a measure of how much an actively managed fund differs in investment exposure from its benchmark index. If you are paying more for active management than you would to invest in an index fund, active share is something to consider. If it is low, you might be overpaying for a “closet indexer.” You can read about how Morningstar assesses active shares here.

    The fund is concentrated, typically holding between 25 and 45 companies.

    According to Morningstar’s most recent data, these were the fund’s top 10 holdings (out of 28 stocks) as of May 31:

    Company

    		 Ticker

    		 % of Eaton Vance Focused Value Opportunity Fund

    		 Forward P/E

    		 2023 total return
    Alphabet Inc. Class A

    		 GOOGL,
    +0.59%         		5.0%

    		 19.6

    		 32%
    Micron Technology Inc.

    		 MU,
    +1.79%         		4.8%

    		 N/A

    		 25%
    American International Group Inc.

    		 AIG,
    +1.15%         		4.3%

    		 8.1

    		 -7%
    Reinsurance Group of America Inc.

    		 RGA,
    -0.34%         		4.2%

    		 8.0

    		 1%
    Bristol Myers Squibb Co.

    		 BMY,
    +0.50%         		4.1%

    		 7.7

    		 -11%
    Wells Fargo & Co.

    		 WFC,
    +0.99%         		4.0%

    		 8.9

    		 4%
    ConocoPhillips

    		 COP,
    +2.96%         		4.0%

    		 10.5

    		 -10%
    Constellation Brands Inc. Class A

    		 STZ,
    +0.30%         		3.9%

    		 20.4

    		 9%
    NextEra Energy Inc.

    		 NEE,
    +0.67%         		3.8%

    		 21.9

    		 -13%
    Charles Schwab Corp.

    		 SCHW,
    -0.43%         		3.8%

    		 16.0

    		 -30%
    Source: FactSet

    Click the tickers for more about each company, fund or index.

    Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

    There is no forward price-to-earnings ratio for Micron Technology Inc.
    MU,
    +1.79%    ,
    because the company’s combined EPS for the next 12 months are expected to be negative.

    Micron is a company in transition, caught up in diplomatic conflict between the U.S. and China, whose government directed some manufacturers in May to stop purchasing memory chips made by the company. Then again, in June, Micron highlighted its “commitment to China” when announcing a new investment in its plant in Xi’an.

    Read: Micron recovery debated by analysts as bottom is called in memory-chip market

    Dunn said downside for Micron’s stock was “mitigated” because of the company’s relatively low debt. He also said that as companies continue to adopt more cloud services and deploy artificial-intelligence technology, demand for memory chips will increase.

    While there is no current forward P/E for Micron, the stock always trades at low valuations relative to most other large tech companies. Dunn touted Micron’s strong cash flow and said the stock was “underappreciated” and remained “an interesting play on cloud and AI.”

    While it is not among the top 10 holdings listed above, Dunn highlighted Dollar Tree Inc.
    DLTR,
    +1.80%
    as an example of the type of value stock he favors. The company “was not well run” following its acquisition of Family Dollar in 2015. But he has been impressed with its more recent turnaround efforts, including improvements in how products are shipped to stores, better efficiency and “a lot of work going on with culture, how they operate, how they treat employees [and] adding some shelf space to move more product.”

    It is interesting to see NextEra Energy Inc.
    NEE,
    +0.67%
    among the fund’s largest holdings. This has been quite a strong grower over the past 10 years, with a total return of 346% as the owner of Florida Power & Light has grown along with its customer base and has become a leader in the build-out of solar-power generation.

    Dunn said the company is “still growing in the mid-single digits. For a utility company, that is a strong profile.”

    When discussing Alphabet Inc.
    GOOGL,
    +0.59%    ,
    the fund’s largest holding as of May 31, Dunn said that “it is really an advertising business with other businesses around it” and that its P/E valuation was “not extremely taxing.” He said Alphabet had been “less aggressive with cost cutting” than other technology giants and added that the company’s “targeted search” through Google and other properties, such as YouTube, “probably provides a better return on investment than broadcast advertising, and that really is the key.”

    Don’t miss: This stock investing strategy has blown away the S&P 500. Here’s a way to refine it for quality.

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