It’s been a wild ride for investors this year. The venerable Dow Jones Industrial Average, the broad-based S&P 500, and the tech-oriented Nasdaq 100 all hit new all-time highs in 2023. It’s a major reversal from last year for the stock market.
Yet it can’t be denied this rally was rather shallow. Just a handful of stocks account for the majority of the gains, especially on the S&P 500 and Nasdaq indices. That’s because they are market capitalization-weighted whereas the Dow is price-weighted. It allowed just seven stocks — the so-called Magnificent 7 — to have an outsized influence on the indices’ gains. Those seven stocks make up one-third of the weighting of the S&P 500 and about half of the Nasdaq. Remove them from the equation and the resulting one-year returns are nearly flat.
So with this group of stocks roaring to new heights, gravity will eventually come into play. At least some on Wall Street think so. What follows are the three leading Magnificent 7 stocks to avoid in 2024, according to analyst price targets.
Meta Platforms (META)
Facebook and Instagram owner Meta Platforms (NASDAQ:META) was the second-best performing Magnificent 7 stock this year. Shares nearly tripled in value as ad spending rebounded. It came as Meta also cut spending some $1.7 billion worth in the third quarter.
At the same time it owns some of the most valuable social media real estate and knows how to monetize it. It ended the quarter with 3.96 billion monthly active users across its properties, a 7% increase from last year while engagement on Instagram’s short-form Reels surged 40%. In India where more than 60% of people on WhatsApp message a business app account, revenue from click to message ads doubled.
Meta’s beating expectations even as Wall Street had doubts, especially last year as growth slowed. Yet it’s a strong business showing even established companies can experience hiccups and still bounce back. But Meta’s been around awhile and understands how to manage operations.
Yet HSBC (NYSE:HSBC) analyst Nicolas Cote-Colisson has a $285 per share price target on Meta. That implies a 20% drop in META stock. He also has a hold rating on the shares, which was an upgrade from his prior “reduce” position and $170 target. That’s a little deceptive though. At the time, Meta had just released Q2 results and the stock closed at just under $300 a share. It’s gained 20% since then. The analyst hasn’t updated his outlook just yet so we don’t know if he thinks the business is worth more now or it’s even more overvalued now. We do know, however, Meta Platforms is still proving to be a remarkable growth story.
Even long-time Microsoft (NASDAQ:MSFT) bear John DiFucci, an analyst with Guggenheim Securities, finally admits the tech giant is just too good to stand in front of anymore. While he’s not a raging bull like some, he agrees AI is a powerful tool benefiting Microsoft in a big way. In a note to investors in September, DiFucci wrote, “The Generative AI narrative is too positive a force to contend with, even though the troubling dynamics we thought might develop, did.”
The analyst was concerned about the macroeconomic winds blowing at the time. PC shipments are in a secular decline and only got a boost due to Covid and the work-from-home necessity. He had a $212 price target on MSFT stock and a sell rating. He upped his target to $232 per share a few months later, a 38% drop from today’s price, even as he maintained the sell rating.
In September, however, he finally capitulated. He’s now neutral on the stock and actually withdrew the price target. That suggests he’s not willing to fight the market despite his ongoing reservations. As good as the AI narrative is now, “we still question how much monetization will be realized and over what timeframe,” he wrote. It’s not unwarranted. AI is the hot new trend, but it needs to prove it can deliver on its promises. That’s not a certainty as we’ve seen other fads shine brightly then faded quickly.
That’s not how Wedbush analyst Dan Ives views it, though. He sees Microsoft having an “iPhone moment” where its AI-powered Co-Pilot dashboard provides “game-changing” monetization opportunities. He raised his target price on MSFT stock from $425 to $450 per share.
Electric vehicle (TSLA) has its share of starry-eyed backers and permabear naysayers too. Cathie Wood still holds a $2,000 per share price target by 2027. That represents a 66% compounded annual growth rate in the stock. At the other end of the spectrum is Roth MKM analyst Craig Irwin who has long felt Tesla is “egregiously overvalued.” The EV maker is at the same price it was back in July when he made the statement. He likely hasn’t changed his mind since. It suggests a 67% plunge in the stock.) maker Tesla (NASDAQ:
Of course, like many high-fliers, Tesla was always overpriced to analysts. At times they were right even if the magnitude of the decline they expected was off. In fact it was Irwin who said the EV stock was overvalued when it traded at a pre-split $700 a share and he put a $150 price target on it. It never got quite that low but peak to trough it did crater 74%.
Now EV demand is cooling off. Manufacturers like Ford (NYSE: F) and GM (NYSE:GM) are putting some production on hold as inventories pile up on dealer lots. Tesla is even cutting prices to attract buyers and also plans to build cheaper cars. It intends to have a $25,000 model soon. That could help revive the market where car buyers say EVs are just too expensive. Tesla seems to be the one stock most likely to tumble next year even if it once again doesn’t reach the lowest of the lows predicted.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.