Investors are still captivated by the excitement surrounding generative AI, but JPMorgan Asset Management believes there are hidden gems in the market that could offer significant gains akin to “coiled springs.”
While the Magnificent Seven stocks, including tech giants like Nvidia, Meta, and Microsoft, experienced 50% annualized earnings-per-share growth in the first quarter, the rest of the S&P 500 is poised to catch up.
JPMorgan anticipates that by the fourth quarter of 2024, earnings expansion for the remaining 493 S&P 500 stocks will align with the performance of the Magnificent 7, as illustrated in the chart below.
JPMorgan Asset Management
“Looking ahead, substantial fiscal spending, particularly on infrastructure projects like the Inflation Reduction Act and the CHIPS and Science Act, along with increasing interest in generative Artificial Intelligence, are expected to create a supportive environment for sustained secular growth,” the strategists stated. “The market has not fully factored in this outlook, evident in the narrow and narrowing scope of the equity market rally.”
For investors seeking untapped potential, JPMorgan suggests exploring non-Mag 7 stocks with undervalued prices that have yet to reflect the anticipated earnings growth surge.
“These stocks could act like ‘coiled springs,'” the note emphasized, highlighting three specific industries:
Semiconductors. JPMorgan recently highlighted the potential for growth in the semiconductor industry, specifically in areas outside of the artificial intelligence (AI) trade. The firm mentioned that sectors like personal electronics, communications, and enterprise could see a resurgence in demand as they recover from the effects of pandemic-related over-ordering.
Additionally, JPMorgan pointed out opportunities in the rail and parcel sectors, citing the unexpected resilience of the US economy and the increasing need for material transportation. Automation in these industries is expected to boost efficiency and drive growth.
On the topic of home improvement, the firm suggested that Americans may start investing more in renovations again. With the average age of US homes increasing, the need for maintenance is also on the rise. This, combined with labor shortages being addressed through immigration, could lead to a resurgence in home improvement projects.
Overall, JPMorgan’s recommendations reflect a broader trend on Wall Street towards diversification rather than solely focusing on high-flying AI stocks. The uncertain economic and political landscape has led to a shift in investment strategies, with some defensive sectors like energy and utilities outperforming even top AI picks like Nvidia in the past year.
DailyBubble sees JPMorgan’s insights as a valuable reminder for investors to consider a balanced and diversified approach to their portfolios. As the market continues to evolve, staying flexible and exploring opportunities across various sectors could be key to long-term success.