Whether people buy into meme stocks or the Magnificent Seven group of tech companies, there has been a lot of bullish sentiment favoring these highly recognizable names with large investor followings.
Meme stocks refer to companies with a large social media following. These stocks rise and fall based on collective investor action, sometimes running counter to stock shorts by large hedge funds.
These can be risky bets to say the least, as individual investors may ignore the underlying stock fundamentals or relative pricing just to get in on a group promoted trade. In the past these trades included purchase of Gamestop and AMC Theater shares. Neither company in 2025 is valued at the levels achieved during a social media frenzy in earlier years. In 2025 stocks considered to be in the mem category might include software company Palantir, Coinbase, and EV car manufacturer Tesla.
If the stock is heavily promoted in social media, let the buyer beware. Hidden agendas may explain why a stock is bought, sold, or shorted. Fundamentals and financial metrics can help estimate performance over the long haul, and investors should consider their personal risk tolerance for loss as well as gain.
The Magnificent Seven is a term coined by Bank of American analyst in 2023, referring to the cowboy western film of the same name. It refers to a group of tech companies, namely Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Together these companies comprise 35.4% of the S&P 500 index market capitalization. They are all large companies with cash rich balance sheets.
Because of recent market volatility since the November Presidential election, these stocks have gyrated in various market sessions due to announcements of foreign tariffs. There is market uncertainty about the longterm effects of tariffs on these and other companies and on the end pricing to customers. Also, investors are looking for more dividends and are shopping for other companies to achieve their growth and income goals, sometimes to supplement the growth of the tech titans. For this reason, non megacap tech investments like index ETF Defiance Ex Mag 7 have evolved.
To evaluate these competing choices, it pays to do some charting. I created a chart on Yahoo Finance that maps the Mag 7 charts since November against the named ETF and a few European tech stocks. Surprise! The large cap European stock I included outperformed the bunch of them.
Which goes to show, always test your assumptions….invest but check and verify. If the landscape shifts, look where the next opportunities may lie.
There is not as much media coverage of international stocks relative to those familiar in the USA. But it pays to research, as often the dividends paid by a foreign company may exceed the average paid in the US. Foreign shares can be held in an investment account in the USA using American Depositary Receipts, or ADRs. Foreign taxes may be withheld from earnings but can be reclaimed when filing US taxes. Look for the line item on the 1099 form indicating foreign taxes paid. Your tax preparer should be reminded of this when you file this year.
When choosing any stock, make sure its volatility patterns match your risk tolerance. If charts show a lot of peaks and valleys, ask yourself if the stock is really for you.
I invite you to assess where you should head in 2025 with your portfolio. Give us a call.
Disclosure:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. LPL Financial does not offer tax advice.
