The so-called “Magnificent Seven” stocks served as the backbone of the rally seen in 2023, and as the new year unfolds, most have maintained their uptrend amid volatility. However, one category of stocks has outperformed the “Mag 7’s” performance over the past 90 days, and a portfolio manager shared insights into the reasons for their exceptional performance.
What Happened: Companies capable of generating robust cash flow are back in favor, according to Sarat Sethi, Managing Partner at Douglas C. Lane & Associates. Speaking on CNBC’s Last Call late Thursday, the portfolio manager remarked, “The market is being very selective; it’s not just saying, ‘Hey, you gotta have great margins, you have to have really growing cash flow.’”
Sethi responded to the CNBC host’s observation that shares of “90’s tech titans” such as International Business Machines Corp. (NYSE:IBM), Oracle Corp. (NYSE:ORCL), Dell Technologies, Inc. (NYSE:DELL), and Intel Corp. (NASDAQ:INTC) have gained more than the “Mag 7” shares over the past three months.
Oracle is in cloud computing and is also involved in AI, Sethi noted. The common factor among the old tech giants is that they have all experienced growth in their cash flow, he said, adding, “When you have interest rates where they are today, that’s what the markets are really focused on.”
“So can you grow, and can you have cash flow, and that’s going to follow you,” Sethi said. The portfolio manager also highlighted other companies in the tech space such as GoDaddy Inc. (NYSE:GDDY) and Qualcomm, Inc. (NASDAQ:QCOM) that fit into this trend.
“So you don’t just have to be with the Mag 7, the big generals; you can actually be out of them. You can be in tech, and then there are other parts of the market too,” Sethi added.
“The common factor here is cash flow,” says Sarat Sethi as the Mag 7 and 90’s tech titans see shares surge. “They’ve all grown their cash flow… that’s what the market’s really focused on.” pic.twitter.com/Q24D9Bpu5j
— Last Call (@LastCallCNBC) January 26, 2024
See Also: Best Technology Stocks
Why It’s Important: Cash flow is a crucial financial metric, especially from a liquidity perspective. Profits often do not provide a realistic picture of a company’s financial condition and can be…
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