Image: Microsoft and Apple have been strong performers the past several years, with Microsoft recently surpassing Apple’s market capitalization to become the largest entity in the S&P 500.
By Brian Nelson, CFA
The start of trading in 2024 hasn’t been tracking the way that we like, but it’s way too early to sound the alarm on any sort of correction. The employment markets remain very healthy, both as it relates to unemployment and wage gains, while inflation looks to be largely under control, with the market expecting a number of rate cuts during 2024. We continue to like the areas of big cap tech and large cap growth in the current market environment.
Microsoft (MSFT) is now the largest company in the S&P 500, with a market cap of ~$2.9 trillion, now larger than Apple (AAPL), which has a market cap of ~$2.84 trillion. Propelling these gains is artificial intelligence [AI], of course. Research provider Wedbush recently reported that it expects as much of 60% of Microsoft’s installed base to use AI (Copilot deployments) in the next three years, resulting in an incremental $25 billion in revenue. We continue to like Microsoft in the newsletter portfolios and value shares at $400 each, higher than where they are currently trading.
Apple continues to muddle along, with concerns that its suite of products will experience lackluster demand throughout 2024 due to heightened competition in China, while it faces a patent dispute with respect to its latest Apple Watch products. There have been a number of downgrades on the Street of Apple stock in the past couple weeks, and while we take note of the challenges to operations of late, we continue to like its status as a safe haven in today’s market environment. We value shares at $180 each, about in-line with where they are currently trading.
In other news, Spirit Airlines (SAVE) has been in freefall as its planned sale to JetBlue Airways (JBLU) was blocked on anti-trust grounds. Though we haven’t commented on the deal before, we’re a bit surprised that the Department of Justice blocked the deal in light of the mega mergers among the majors that it had approved in the past. We’re never going to be fans of airline stocks, so the news isn’t directly applicable to our membership base, but it, along with Boeing’s (BA) recent misstep, is having a negative impact across the airline sector (JETS). We view airlines as largely uninvestable given the huge sensitivity of their operations to changes in jet fuel costs and ticket prices.
Albemarle (ALB) said on January 17 that it would pursue initiatives to cut cuts and scale back capital-expenditure expectations in a bid to improve its free cash flow. The Dividend Aristocrat’s Dividend Cushion is poor, coming in at -1.2, and the moves will improve the measure, but not to the magnitude that we would like in a dividend payer. We include it in the simulated ESG newsletter portfolio given its lithium operations and electric vehicle end market. Albemarle now expects capex in the range of $1.6-$1.8 billion for 2024, down from $2.1 billion in 2023, and plans to save $95 million in annual costs related to SG&A and reduced spending on contracted services.
As we evaluate the past couple weeks, the markets have been quite choppy following a very strong fourth quarter of 2023. We continue to be bullish on the broader equity markets, and we think investors should continue to stay aggressive as we expect good macroeconomic news and AI-adoption to fuel a strong 2024. Our favorite ideas remain in the simulated newsletter portfolios and in the Exclusive publication, while we continue to believe that real estate, utilities, and banks will be key laggards on the year. Recently, our top two ideas Visa (V) and Alphabet (GOOG) reached new 52-week highs.
NOW READ: 12 Reasons to Stay Aggressive in 2024
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, QQQ, SCHG, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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