Jim Cramer, the CNBC commentator and host of the TV show Mad Money, is urging investors to take advantage of the current market volatility. Specifically, Cramer suggests buying the mega-cap technology stocks known as the “Magnificent Seven.”
With bond yields at their highest level in 16 years and rising, Cramer is telling his viewers to double down on these stocks. The Magnificent Seven is made up of Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA).
In his contrarian stance, Cramer is arguing that these seven stocks, most of which have a market capitalization above $1 trillion, are best positioned to survive the current market turmoil. This is largely due to their size and the huge amounts of cash they have on hand.
What Makes The Magnificent Seven Special
Recently on Mad Money, Cramer said that most stocks are likely to get pulled lower as bond yields creep higher. However, the mega-cap tech stocks are different because of the huge amount of cash reserves they have. Cramer stressed that these tech stocks led the market rally in this year’s first half, with many of their share prices tripling. He believes they will likely continue leading in 2024.
“We’re in an unusual situation, but skyrocketing bond yields are bad news for the vast bulk of the market. The mega-cap techs are the one big exception. You want to make it through this difficult moment? You need the Magnificent Seven, and then the rest,” said the TV host and former hedge fund manager.
Cramer added that few companies in the world have balance sheets as strong as the mega-cap technology concerns. He also points out that they have best-in-class products that remain in demand, whether it be Apple’s iPhones or Nvidia graphic processing units (GPUs). The strong financial position of these companies and their overall solvency should allow them and their shareholders to sail through the current market storm.
Long-Term Winners
Yields on the benchmark 10-year U.S. Treasury continue to hover at their highest level since 2007, causing volatility among stocks. Bond yields move inversely to prices and the yields are rising now because the prices of bonds are getting crushed. U.S. Treasuries are on track to post their third straight annual loss, an historic even that is without precedence, according to Bank of America analysts.
However, the tech stocks singled out by Jim Cramer have a track record of outperformance over the past decade. Every stock in the Magnificent Seven, with the exception of Amazon, has seen its share price more than double in the last five years. Nvidia’s stock is up more than 600% over the past five years, and Tesla’s share price has increased more than 1,400% in that timeframe.
As a group, the performance of the Magnificent Seven has far exceeded the five-year gain in the benchmark S&P 500 index of 56%. Even the Nasdaq index, on which all seven stocks trade, can’t match their individual performance. The Nasdaq has gained 80% over five years. The performance of the Magnificent Seven is even more impressive if one looks back 10 years.
What’s Next
Investors in search of safe havens amid the continued market volatility might want to heed Jim Cramer’s recommendation. These mega-cap tech stocks do have a history of outperformance in both good times and bad. And many of them have a strong tailwind right now thanks to the explosion of generative artificial intelligence (AI). With uncertainty continuing, these tech stocks could be a good option.
On the date of publication, Joel Baglole held long positions in Apple, GOOGL, MSFT and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
