The Magnificent Seven are back in charge... These stocks are keeping us out of a real bull market... An electric-vehicle bloodbath... Choose your ETFs carefully... Investments versus lottery tickets...
 Believe it or not, I (Dan Ferris) like bull markets as much as everybody else does...
Regular Digest readers know me for my skepticism about overvalued markets. But that's not because I want the markets to fall. A never-ending bull market would be great... just making money in stocks with virtually no effort, year after year without end. That'd be nice, wouldn't it? Obviously, it's not going to happen. When stocks get exorbitantly overvalued like they are now, history teaches us to proceed with caution. So, with the S&P 500 Index hitting new all-time highs recently, this chart bugs me...  The black line is the S&P 500. It's a market-capitalization-weighted index, meaning the bigger a stock's market cap, the more of the index it takes up. The biggest companies right now – Microsoft and Apple – each take up about 7% of the index. They both have market caps of roughly $3 trillion. The Magnificent Seven (Apple and Microsoft plus Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla) take up roughly 30% of the index in total. The blue line is the equal-weighted S&P 500. In that index, Apple accounts for the exact same percentage of the overall index as the smallest stock (recently Whirlpool, with a $6.1 billion market cap). The cap-weighted S&P 500 has recently made new all-time highs. The chart shows it trading about 1.5% above its last new all-time high, made on January 3, 2022 – where the long bull market began its slump into the 2022 bear. Also, the Nasdaq Composite and Russell 2000 indexes have failed to make new highs... another irksome sign if you're looking for a bull market. All of this suggests that, just like we saw throughout 2023 (except December), most stocks are sucking wind as a handful of them pull the big indexes up. For example, the Nasdaq's failure to make a new high suggests that the index's other roughly 3,400 stocks are doing so poorly, they're able to keep the Magnificent Seven from pulling it to a new high. And the Russell 2000's failure suggests that not having the Mag Seven or other mega-cap names around to prop you up makes for rough going nowadays. I've talked a lot about the Magnificent Seven's dominance... By now, you know these names are like the "Nifty Fifty" stocks of the 1970s. Everybody thinks they're fantastic, no-brainer bets that'll go up forever. Nobody thinks they can fail investors in a major way. Nobody questions how they dominate their markets or that they're the best investments in the world. And nobody understands that such unwavering devotion is one of the main reasons why they're virtually guaranteed to disappoint. Perhaps they won't flop as badly as the Nifty Fifty did. Some of those stocks fell 90% or more within a couple of years. But disappoint they likely will. And these are the stocks supporting the market. Look further and you'll find plenty that are even worse. Today, I'm going to examine some of the stocks that are keeping us out of a true bull market... They're a big part of the reason the Nasdaq has failed to make new highs... I'm talking about the utter devastation in electric-vehicle ("EV") stocks. I realize the EV sector is small. But Tesla is a Mag Seven stock, after all, so you can't say the sector doesn't have a serious influence on the Nasdaq's performance. And they have been absolutely obliterated... Number-cruncher extraordinaire Charlie Bilello recently posted on X (formerly Twitter) a list of 18 EV manufacturers and one battery maker trading anywhere from 40% to 99.99% below their all-time highs. Only three of the companies –Tesla (TSLA) and China-based BYD (BYDDF) and Li Auto (LI) – report any profits at all, and they're all trading 40% or more below their all-time highs. You could have made plenty of money by trading all three of these names, but only if you'd bought them long enough before the bubble that you're still sitting on gains. All the rest are down 84% or more. All but five are down 91% or more. Two have a Q at the end of their ticker symbol, indicating that they're bankrupt. In other words, electric-vehicle stocks are a total bloodbath. 
This isn't about climate change or the political agenda to shove EVs down our throats. Whatever you believe about that, EV-related stocks were and perhaps still are a massive bubble. They're an absolutely disastrous investment proposition for anyone who didn't manage to buy the big three (BYD, Li Auto, and Tesla) early enough to still be holding a profit. And at least two exchange-traded fund ("ETF") issuers know it... They've come up with a way to bet on investors' appetite for EV stocks by just saying they're investing in them... while actually investing in something else entirely. Consider the Global X Autonomous & Electric Vehicles Fund (DRIV). The fund started trading in April 2018 at around $15 per share. It surged to about $32 in November 2021, along with the rest of the tech stocks, and today it's around $23 per share... well above its IPO price. The fund's largest component isn't one of the big electric-car makers – not Tesla or one of the big Chinese names. Nor is it a small electric-car maker... or a battery maker... It's Nvidia. The wildly successful chipmaker is propping up the fund... and that's thanks to its AI-related demand much more than its autonomous-driving products. Along with Nvidia, the fund's 10 largest components – which make up 34.2% of its net asset value – are Alphabet, Intel, Toyota, Qualcomm, Apple, Honeywell, Microsoft, Tesla, and Hitachi. The fund also includes other automakers like Honda, General Motors, Volkswagen, Ford, Kia, Hyundai, and Nissan, among others. Of these stocks, only Tesla is a major maker of electric vehicles. EVs make up 12% of VW's sales but less than 10% for Hyundai and less than 5% for every other established automaker in the fund. Pure EV makers account for just 5.4% of the fund. Nearly half of that total is Tesla. And the fund doesn't even touch BYD or Li Auto, the two best performers on Bilello's list. Now, I could see how this would be a decent way to bet on EVs... but that's only because many of these companies have so little at stake that it doesn't matter if their EV-related business succeeds... So... these companies might succeed and, as a group, keep generating a positive return over the fund's IPO price. And theoretically, you could buy DRIV in the hope that its holdings will suddenly develop big, profitable EV businesses. But it's much more likely that a good return would be the result of all the non-EV stuff they do – their real businesses – and not their EV bets. There's a good reason DRIV didn't put much of its money in EV and autonomous-driving stocks... The technology isn't there. EVs are much more a niche product than governments pushing so-called green transition agendas would have you believe. If you've ever considered owning one, you're hopefully aware of their limitations... like the time it takes to charge them up versus filling a gas tank... poor performance in extreme weather... super-expensive battery packs that need replacing more often than most folks know... limited driving range... a dearth of charging stations across the country... and high price tags... Any single one of these issues could be enough to turn off most car buyers. Just ask any car dealer how their EV sales are doing. The answer will be "not so hot"... Last November, more than 4,000 U.S. car dealers wrote President Joe Biden an open letter, stating that... Electric vehicle demand today is not keeping up with the large influx of BEVs arriving at our dealerships prompted by the current regulations. BEVs are stacking up on our lots. Some people still do buy electric vehicles. That's more than I can say about self-driving cars. This technology is still struggling with basic environmental factors, as an October 2022 Bloomberg article noted: Six years after companies started offering rides in what they've called autonomous cars and almost 20 years after the first self-driving demos, there are vanishingly few such vehicles on the road. And they tend to be confined to a handful of places in the Sun Belt, because they still can't handle weather patterns trickier than Partly Cloudy. State-of-the-art robot cars also struggle with construction, animals, traffic cones, crossing guards, and what the industry calls "unprotected left turns," which most of us would call "left turns." After $100 billion invested in self-driving technology, autonomous vehicles are "going nowhere," as Bloomberg declared in its headline. I expect that autonomous-driving evangelists decried the article at the time... complaining that its closed-minded author failed to recognize the technological breakthrough that was surely just around the corner. Instead, since the article came out, autonomous driving has gotten even further from reality. In October 2023, a self-driving electric taxi from General Motors' Cruise subsidiary ran over a San Francisco pedestrian, dragged her 20 feet, and then parked on top of her. In response, Cruise – once America's largest robotaxi operator – lost its license to operate in California. It ended up indefinitely mothballing its entire nationwide fleet of nearly 1,000 cars. Meanwhile, starry-eyed analysts valued Alphabet's Waymo self-driving subsidiary at $175 billion as recently as 2018... while an actual investment in the company valued it at a mere $30 billion (83% less) just two years later. That's typical of venture-capital investments – highly risky, early-stage companies that are much likelier to fail than to take off. Maybe that's why so little of this 'EV and autonomous-driving fund' is invested in EV or autonomous-driving stocks... To their credit, the Global X folks put most of the DRIV fund into plenty of decent (and some excellent) companies that may or may not benefit from electric vehicles and autonomous-driving technology... and won't suffer much if it fails. Take Alphabet... It gets about 98.8% of its revenue from advertising, Google Play app sales and in-app purchases, and YouTube subscription revenues. Waymo is part of Alphabet's "other bets" category, all of which accounted for just 0.3% of the company's revenue last quarter. The "other bets" could all disappear next week and the stock would probably go up on the news, since it would mean no more money being wasted on them. Given that you're mostly not betting on autonomous driving or electric vehicles if you buy the Global X Autonomous & Electric Vehicles Fund, its name seems more like a marketing ploy for gathering client assets into a fund with a higher-than-average 0.68% expense ratio. DRIV's expense ratio brings in about $4.3 million a year, based on the fund's recent net assets of around $634 million. Judging by issuers of exchange-traded funds ("ETFs") I've studied and recommended in my Extreme Value newsletter, the margins on that revenue could be 80% or more. Much of the fund's operations are likely fully automated and require minimal administrative and regulatory compliance to keep running. You'd have done better by buying the fund's top 20 or so components in your no-commission online brokerage account. Instead, this fund basically weighs down some good, even great, businesses with some tiny speculative bets, most of which will likely cease to exist in a few years... and charges you 68 basis points for the privilege. The one-click convenience of ETFs is enticing, and that fact is making companies like Global X rich. Still, I do commend Global X for not putting so much of the fund in the absolute garbage on Bilello's list. That has kept the fund from blowing up as badly as the sector. A similar ETF, the iShares Self-Driving EV and Tech Fund (IDRV) started up on April 16, 2019, has about $276 million of assets, and has largely tracked DRIV's performance. IDRV is more heavily weighted toward actual EV makers, though – so, not surprisingly, it has lagged DRIV. By the way, if you want to buy most of the garbage in Bilello's list of EV disasters with leverage... That doomed proposition is available to you in the form of the Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (EVAV). It went public in August 2022 and is down about 90% since then. I wouldn't go so far as to say such a product should be illegal, but I also think it's pretty shameless to issue a fund that you know is utterly doomed. (And if the Direxion folks don't know it's doomed, they belong in a different line of work.) You could have gotten much better results by avoiding all three funds and just buying a Nasdaq Composite Index fund. The overall index is up about 120% since April 2018, more than double DRIV's return since its inception. 
Among the lessons here is that you should never buy an ETF without knowing exactly what's in it... ETF makers will put anything in their funds. And if they care about having a liquid trading fund, they'll need the biggest, most liquid stocks. That's why ExxonMobil (XOM) is among the top 15 holdings of more than 100 ETFs. They're mostly energy, value, and dividend growth funds, as you'd expect. But the oil, gas, petrochemical, and refining giant is also among the biggest holdings in at least one environmental-social-governance ("ESG") fund, one "climate action" fund, one technology fund, one large-cap growth fund, and a "carbon transition" fund. It obviously doesn't really belong in any of them any more than Alphabet deserves to be a big piece of DRIV, despite its ownership of Waymo. If you must bet on EVs... I've made my skepticism on electric vehicles clear. But if you feel differently, investing in EV makers directly is still riskier than I'd recommend. The EV funds demonstrate the value of holding companies that are in a different business, hoping they'll be handsomely rewarded for their EV bets and knowing they won't be too badly hurt by them. It's not an investment I'd likely make personally, but at least it's an investment. Buying an EV maker directly is just a lottery ticket. Some of the once-hot EV makers are going to zero. And even the three profitable companies – Tesla, BYD, and Li Auto – remain exorbitantly valued even after their recent slumps. And the future growth they'd need to justify those valuations is nothing like a slam dunk. For now, all three companies continue to grow revenues. It's no secret that U.S. investors generally don't trust Asian financial statements, but for now, let's assume BYD and Li Auto really did grow revenues at 71% and 161%, respectively, in 2022. I have to wonder how long it'll take before the Chinese EV makers' growth rates fall back to earth. Few businesses can sustain growth like that for long. Telsa's revenue growth rate has fallen dramatically in the last two years, from 70% in 2021 to less than 19% last year. I suspect it won't sustain even double-digit growth from here, which is what it would need to justify its current market valuation. You get the point. This is a classic case of overpaying for overhyped growth expectations that are already starting to look long in the tooth. I'm not saying BYD, Li Auto, Tesla, or any other particular EV maker will go bankrupt anytime soon. But taking a look at the sector sheds light on how at least one of the Magnificent Seven stocks might disappoint soon (more than it already has)... and how all the other stocks in that sector are already weighing the Nasdaq down.
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New 52-week highs (as of 1/25/24): Advanced Micro Devices (AMD), Amazon (AMZN), ASML (ASML), Berkshire Hathaway (BRK-B), Dorchester Minerals (DMLP), Expeditors International of Washington (EXPD), Alphabet (GOOGL), W.W. Grainger (GWW), JPMorgan Chase (JPM), Microsoft (MSFT), Phillips 66 (PSX), ProShares Ultra QQQ (QLD), Invesco S&P 500 Equal Weight Technology Fund (RSPT), S&P Global (SPGI), Spotify Technology (SPOT), ProShares Ultra S&P 500 (SSO), Textron (TXT), ProShares Ultra Financials (UYG), Visa (V), Vanguard S&P 500 Fund (VOO), and W.R. Berkley (WRB). In today's mailbag, more discussion about Argentine President Javier Milei's speech last week at the World Economic Forum... As always, keep your notes coming to feedback@stansberryresearch.com. "The speech sounded like Margaret Thatcher/Ronald Reagan. Government is the Problem. Every high schooler in the country, and every subscriber to Stansberry Research, ought to read Richard Maybury's Whatever Happened to Penny Candy? and Whatever Happened to Justice? Highly recommended." – Subscriber Thomas C. Good investing, Dan Ferris
Eagle Point, Oregon
January 26, 2024
Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios | Stock | Buy Date | Return | Publication | Analyst | MSFT
Microsoft | 11/11/10 | 1,341.7% | Retirement Millionaire | Doc | MSFT
Microsoft | 02/10/12 | 1,282.8% | Stansberry's Investment Advisory | Porter | wstETH
Wrapped Staked Ethereum | 02/21/20 | 1,011.3% | Stansberry Innovations Report | Wade | ADP
Automatic Data Processing | 10/09/08 | 857.8% | Extreme Value | Ferris | WRB
W.R. Berkley | 03/16/12 | 759.2% | Stansberry's Investment Advisory | Porter | BRK.B
Berkshire Hathaway | 04/01/09 | 575.3% | Retirement Millionaire | Doc | HSY
Hershey | 12/07/07 | 461.4% | Stansberry's Investment Advisory | Porter | AFG
American Financial | 10/12/12 | 418.6% | Stansberry's Investment Advisory | Porter | PANW
Palo Alto Networks | 04/16/20 | 360.0% | Stansberry Innovations Report | Engel | BTC/USD
Bitcoin | 01/16/20 | 349.9% | Stansberry Innovations Report | Wade | Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals | | 4 | Stansberry's Investment Advisory | Porter | | 3 | Stansberry Innovations Report | Engel/Wade | | 2 | Retirement Millionaire | Doc | | 1 | Extreme Value | Ferris |
Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio | Stock | Buy Date | Return | Publication | Analyst | wstETH
Wrapped Staked Ethereum | 12/07/18 | 2,053.7% | Crypto Capital | Wade | ONE/USD
Harmony | 12/16/19 | 1,093.9% | Crypto Capital | Wade | POLYX/USD
Polymesh | 05/19/20 | 1,040.5% | Crypto Capital | Wade | BTC/USD
Bitcoin | 11/27/18 | 960.8% | Crypto Capital | Wade | MATIC/USD
Polygon | 02/25/21 | 817.6% | Crypto Capital | Wade | Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio.
Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios | Investment | Symbol | Duration | Gain | Publication | Analyst | | Nvidia^* | NVDA | 5.96 years | 1,466% | Venture Tech. | Lashmet | | Microsoft^ | MSFT | 12.74 years | 1,185% | Retirement Millionaire | Doc | | Band Protocol crypto | | 0.32 years | 1,169% | Crypto Capital | Wade | | Terra crypto | | 0.41 years | 1,164% | Crypto Capital | Wade | | Inovio Pharma.^ | INO | 1.01 years | 1,139% | Venture Tech. | Lashmet | | Seabridge Gold^ | SA | 4.20 years | 995% | Sjug Conf. | Sjuggerud | | Frontier crypto | | 0.08 years | 978% | Crypto Capital | Wade | | Binance Coin crypto | | 1.78 years | 963% | Crypto Capital | Wade | | Nvidia^* | NVDA | 4.12 years | 777% | Venture Tech. | Lashmet | | Intellia Therapeutics | NTLA | 1.95 years | 775% | Amer. Moonshots | Root | ^ These gains occurred with a partial position in the respective stocks.
* The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. | 
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