The Magnificent Seven are no longer a markets monolith.
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The Magnificent Seven stocks are fun to watch, but to be fair, they do look rather expensive right now. The median P/E ratio of this exclusive club is 38 times trailing-12-month earnings, and some are valued much higher.
With that in mind, remember that all the Magnificent Seven stocks are in the tech sector. But there are some other areas of the market where there are some excellent bargains, even among the largest and strongest companies. And one of these is real estate.
My “Magnificent Seven” of the real estate sector
There are well over 100 major real estate investment trusts, or REITs, in the market, but when constructing my Magnificent Seven, I’m looking at some of the largest players in the industry that all have excellent track records of growth, with large opportunities still ahead of them.
With that in mind, here are my Magnificent Seven REITs, listed in no particular order, followed by quick descriptions of each one:
|
Company (Ticker Symbol) |
Specialization |
Dividend Yield |
|---|---|---|
|
Prologis (PLD 0.48%) |
Industrial |
2.9% |
|
Digital Realty Trust (DLR -0.29%) |
Data centers |
3.2% |
|
American Tower (AMT 0.29%) |
Communications infrastructure |
3.3% |
|
Realty Income (O -0.17%) |
Net-lease retail |
5.9% |
|
Vici Properties (VICI 0.07%) |
Gaming |
5.6% |
|
Mid-America Apartments (MAA 0.81%) |
Residential |
4.6% |
|
Public Storage (PSA 1.51%) |
Self-storage |
4.2% |
Data source: CNBC. Dividend yields as of March 4.
- Prologis: The largest REIT in the market, Prologis is a leader in industrial real estate, with a massive portfolio of warehouse and distribution center properties located all around the world.
- Digital Realty Trust: Digital Realty owns and operates data centers, which can be thought of as the physical “homes” of the internet. Data centers are secure and reliable places where servers and other computing infrastructure are housed.
- American Tower: Despite the name, American Tower is a worldwide leader in communications infrastructure, owning tens of thousands of cell towers that make your wireless communications possible.
- Realty Income: Realty Income owns more than 11,000 properties, about 80% of which are occupied by retail tenants. Its properties are mainly freestanding, and its tenants are in businesses that aren’t easily disrupted by e-commerce and aren’t too recession prone.
- Vici Properties: Vici owns a large portfolio of gaming real estate, including several iconic Las Vegas Strip properties. It has begun diversifying into other types of experiential real estate in recent years and hopes to become a massive experiential REIT.
- Mid-America Apartments: One of the leading residential REITs, Mid-America owns more than 100,000 apartment units, most of which are located in markets with above-average job and wage growth.
- Public Storage: The largest self-storage operator by market cap, Public Storage has a long track record of responsible growth and delivering excellent returns for investors.
Why invest in these REITs now?
To be clear, these are seven rock-solid REITs, and they could be excellent additions to your portfolio no matter when you buy them. However, these could be especially great opportunities as we head into spring.
For one thing, all seven have excellent growth potential, but the current high-interest environment isn’t a great one for growth. Cost of capital is high right now, and it’s difficult to borrow at today’s interest rates and still grow earnings.
In addition, many of these REITs are significantly below their all-time highs, but not for any reason to do with the businesses themselves. In addition to making borrowing costs high, rising rates tend to put negative pressure on income-based investments like REITs. While the S&P 500 is at a record high as I write this, five of the seven REITs mentioned here are at least 20% below their peaks. However, if rates start to come down later this year like many experts expect, it could be a major positive catalyst for their total returns in the coming years.
Matt Frankel has positions in Digital Realty Trust, Public Storage, Realty Income, and Vici Properties. The Motley Fool has positions in and recommends American Tower, Digital Realty Trust, Mid-America Apartment Communities, Prologis, Realty Income, and Vici Properties. The Motley Fool recommends the following options: long January 2026 $180 calls on American Tower and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.
If you had invested $10,000 in Alphabet (GOOG -2.90%) (GOOGL -2.91%) stock when it first began trading in 2004 as Google, you would have more than $550,000 today. I suspect every investor on the planet would love a 55-bagger.
With Alphabet’s market cap now topping $1.7 trillion, the prospects of getting that kind of return over the next two decades are slim. However, I think shares of Google’s parent still have a lot of room to run. Here are seven reasons why buying this “Magnificent Seven” stock could be a brilliant move right now.
1. A business that dominates multiple markets
Ultimately, the main reason for any long-term investor to buy any stock is that it has a great underlying business. Alphabet checks off this box and then some.
The company dominates multiple markets. Google Search ranks as the top search engine by far. YouTube is the No.1 video sharing platform. Chrome is the most widely used browser. Android has the biggest market share in mobile operating systems.
Alphabet also has several other products that might not fully dominate their respective markets but still rank among the leaders.
2. Exceptional financials
The proof that a business is truly strong is exceptional financial results. Alphabet generated total revenue of nearly $307.4 billion in 2023. It posted a profit of $73.8 billion — a greater amount than the individual market caps of more than three-fourths of the S&P 500. The company finished last year with a massive cash stockpile of nearly $111 billion. Exceptional? I think so.
3. A huge AI opportunity
Of course, some businesses can still generate strong financial results but have less-than-inspiring growth prospects. That’s not the case with Alphabet. One tailwind for the company stands out above all others: artificial intelligence (AI).
Alphabet has long been a leader in AI development. I don’t see that changing. AI should especially drive growth for the company’s Google Cloud unit with an accelerated transition of IT spending to the cloud.
There is an argument that AI could present an existential threat to Google Search. I disagree. Sure, search engines will evolve and be supplemented by AI virtual assistants. However, my prediction is that Alphabet will adapt successfully to the technology changes.
4. Waymo
One area of Alphabet’s AI focus warrants a special mention. The company’s Waymo unit is a leader in developing self-driving car technology. Cathie Wood’s ARK Invest projects that robotaxis could generate $9 trillion in sales by 2030.
Even if the amount and timing of that prediction are overly optimistic, I think the robotaxi market will be ginormous. And I think that Waymo will be one of the biggest winners in it.
5. Optionality
The best stocks to buy are those that have optionality (i.e., multiple paths to growth). Alphabet has more optionality than most. The company is a pioneer in quantum computing, which holds the potential to be a huge market. Its famous “other bets” segment includes biotech ventures, smart-home devices, and more.
6. A reasonable valuation
In many cases, stocks can have great underlying businesses, financials, and growth prospects but still not be good choices for investors because of sky-high valuations. Alphabet, though, has a reasonable valuation — especially in light of its growth opportunities. Based on a model created by New York University finance professor Aswath Damodaran, often referred to as the “Dean of Valuation,” Alphabet is the cheapest Magnificent Seven stock right now.
7. It’s underestimated
Despite all of its strengths, Alphabet is still underestimated by many people. Some wrote the company off after its public relations stumble with the launch of the Google Bard generative AI app last year. Others point to the company’s recent embarrassment of Google Gemini creating inaccurate images of historical figures. I think these are merely minor bumps on a long road of growth.
An “underdog” that dominates multiple big markets, is making money hand over fist, has multiple paths to growth, and is reasonably valued? I call that a dog to bet on.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
Thanks to strong corporate results, as well as the ongoing artificial intelligence (AI) boom, the so-called “Magnificent Seven” stocks are soaring to new heights. All of these companies have seen their share prices rise in the last 12 months, except for one.
Tesla (NASDAQ: TSLA) shares are down over 2% during that time frame. That’s a sign that the market has grown pessimistic about the business and its prospects.
Instead of the electric vehicle stock, the Magnificent Seven should include Netflix (NASDAQ: NFLX), the world’s dominant direct-to-consumer streaming service. Its shares have soared 77% in the past year. Here’s my case.
Tesla is an expensive automaker
After years of outsize growth and improving profitability, Tesla has hit a roadblock. Higher interest rates and intense competitive pressures have pumped the brakes on revenue gains, with sales up just 3% in the fourth quarter of last year. And in 2023, Tesla’s gross margin was 18.2%, down from 25.6% in the previous year.
If you want to view things from a positive angle, Tesla’s valuation has come down due to the stock’s 17% decline in the trailing-three-year period. Shares trade at a forward price-to-earnings (P/E) ratio of about 61 today.
However, this is still a very expensive price to pay for a struggling enterprise. I think the valuation still prices in the assumption that Tesla will get back to posting the monster growth it did in prior years, with margin expansion a sure thing.
I also view the valuation as reflecting investor optimism about Tesla being categorized as a tech company and not an automaker. To its credit, the business is truly innovative and disruptive, and there’s still the possibility of introducing full self-driving functionality at some point in the future. But as things stand right now, it’s still a car manufacturer.
Press play on Netflix
While Tesla struggles, Netflix is thriving. The leading streaming entertainment provider added 13.1 million net new subscribers last quarter, bringing the total to 260.3 million. This is a huge reversal from nearly two years ago, when Netflix lost 1.2 million customers in the first six months of 2022, and shareholders fled for the exits.
Last quarter, Netflix registered member growth in all its geographic regions, boosted by the successful launch of a cheaper, ad-supported tier, as well as efforts to crack down on password sharing. The company is dipping its toes in the live sports and entertainment space with its WWE partnership.
Netflix still has a huge opportunity to gain subscribers. According to CFO Spence Neumann, there are about 1 billion broadband-enabled households in the world (excluding China, where Netflix isn’t available). This gives the business a massive expansionary runway.
With Netflix’s first-mover advantage in the industry and a dominant market position with lots of growth potential, investors might not realize that the company is also booming from a profitability perspective. Netflix reported an operating margin of 21% in 2023, up from 18% in 2022. Executives believe this metric can continue expanding in the years ahead.
Plus, here’s something the bears never thought would happen: Positive free cash flow (FCF) production is a usual occurrence these days. Netflix is forecasting FCF of $6 billion this year, after raking in $6.9 billion in 2022. The leadership team will use this to repurchase shares.
I’m not sure if Netflix will replace Tesla in the Magnificent Seven anytime soon, but the latter certainly deserves to be placed in that category.
Should you invest $1,000 in Netflix right now?
Before you buy stock in Netflix, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Netflix wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Tesla. The Motley Fool has a disclosure policy.
Forget Tesla: I Think This Stock Should Replace It in the “Magnificent Seven” was originally published by The Motley Fool
Since the beginning of 2023, investors have enjoyed a true running of the bulls on Wall Street. The iconic Dow Jones Industrial Average and broad-based S&P 500 galloped to fresh highs, while the growth-driven Nasdaq Composite ended the previous week a stone’s throw from eclipsing its November 2021 record-closing high.
While I’d love to tell you that this has been a broad-driven rally, the emergence of a new bull market is the result of outsized returns from the “Magnificent Seven.”
When I say Magnificent Seven, I’m referring to some of the largest, most influential businesses on Wall Street:
These are seven innovation-driven businesses that offer an abundance of competitive advantages. Examples include Alphabet’s virtual monopoly in internet search with Google; Microsoft’s continued dominance with its Windows operating system; Tesla’s position as North America’s leading electric vehicle manufacturer; Amazon’s dominant e-commerce marketplace; and Meta’s top social media assets, which attract nearly 4 billion active users each month.
While the outperformance of the Magnificent Seven isn’t lost on Wall Street, its most successful money managers have very different outlooks on these top-tier stocks, as evidenced by the latest round of 13F filings. A 13F allows investors to see what Wall Street’s brightest minds bought and sold in the latest quarter.
Based on 13Fs for the December-ended quarter, three Magnificent Seven stocks were given the heave-ho by billionaire investors, while another was aggressively purchased.
Magnificent Seven stock No. 1 billionaires are selling: Meta Platforms
The first Magnificent Seven stock that was sent to the chopping block in the fourth quarter is social media giant Meta Platforms. A half-dozen billionaire money managers lightened their respective fund’s stakes in the parent of Facebook, Instagram, and WhatsApp, including (total shares sold in parentheses):
-
Jeff Yass of Susquehanna International (3,037,082 shares)
-
Chase Coleman of Tiger Global Management (1,430,767 shares)
-
Philippe Laffont of Coatue Management (542,399 shares)
-
Steven Cohen of Point72 Asset Management (371,850 shares)
-
Israel Englander of Millennium Management (307,709 shares)
-
David Tepper of Appaloosa Management (100,000 shares)
The most logical reason for billionaires to be wary of Meta is the likelihood of a U.S. recession taking shape in 2024. Meta generates almost 98% of its revenue from advertising on its social media platforms, and it’s perfectly normal for advertisers to reduce their spending during periods of economic weakness. A recession would hurt Meta’s sales and its ad-pricing power in the short run.
The other potential concern for billionaires might be Meta’s valuation. Shares of the company have more than quintupled in value from their 2022 bear market low. Billionaires selling could represent simple profit-taking, or perhaps signal that top asset managers anticipate a short-term pullback in Meta stock.
However, the interesting thing about Meta is that it’s still historically cheap, even after its run-up. Shares of the company are valued at 12.6 times forecast cash flow in 2025, which represents a nearly 20% discount to its average price-to-cash-flow multiple over the trailing-five-year period.
Magnificent Seven stock No. 2 billionaires are selling: Alphabet
A second Magnificent Seven stock that got the boot from billionaire asset managers in the December-ended quarter is Alphabet. The parent of internet search engine Google, streaming platform YouTube, and cloud infrastructure service platform Google Cloud saw seven billionaires sell its stock, including (total shares sold in parentheses for Alphabet’s Class A shares, GOOGL):
-
Philippe Laffont of Coatue Management (3,302,342 shares)
-
Stephen Mandel of Lone Pine Capital (3,113,001 shares)
-
Chase Coleman of Tiger Global Management (1,278,300 shares)
-
Dan Loeb of Third Point (900,000 shares)
-
Ken Griffin of Citadel Advisors (806,651 shares)
-
Terry Smith of Fundsmith (571,317 shares)
-
Steven Cohen of Point72 Asset Management (236,969 shares)
Similar to Meta, the exodus among billionaires from Alphabet may have to do with concerns about the health of the U.S. economy. A few money-based metrics and predictive indicators have been blaring warnings that U.S. economic activity could weaken. Alphabet brought in about 76% of its net sales in 2023 from advertising on Google search, Google Network, and YouTube.
And just like Meta, the selling doesn’t seem to make much sense. In addition to periods of growth disproportionately outlasting recessions, Alphabet’s Google accounts for more than 91% of worldwide internet search share, as of January. In fact, you have to look back nearly nine years to find the last time a month went by where it didn’t account for at least 90% of global internet search. Alphabet’s ad-pricing power is practically unsurpassed.
Alphabet also completed its first year of operating profitability from its high-margin cloud infrastructure services segment. Google Cloud has gobbled up a 10% share of global cloud infrastructure service spending and shouldn’t have any trouble meaningfully increasing its cash flow in the years to come.
Magnificent Seven stock No. 3 billionaires are selling: Nvidia
The third Magnificent Seven stock that had billionaires willingly pressing the sell button during the fourth quarter is the infrastructure backbone of the artificial intelligence (AI) movement, Nvidia. All told, eight billionaires were sellers of the hottest megacap stock on Wall Street, including (total shares sold in parentheses):
-
Israel Englander of Millennium Management (1,689,322 shares)
-
Jeff Yass of Susquehanna International (1,170,611 shares)
-
Steven Cohen of Point72 Asset Management (1,088,821 shares)
-
David Tepper of Appaloosa Management (235,000 shares)
-
Philippe Laffont of Coatue Management (218,839 shares)
-
Chase Coleman of Tiger Global Management (142,900 shares)
-
David Siegel and John Overdeck of Two Sigma Investments (30,663 shares)
One of the prime reasons billionaire investors may have rushed for the exit is growing graphics processing unit (GPU) competition. Not only is Nvidia going to fend off increasing competition from external competitors like Advanced Micro Devices and Intel, but many of Nvidia’s top customers are developing their own AI chips, including Microsoft and Meta Platforms.
There’s also a real possibility that Nvidia could cannibalize its own gross margin as it expands its production of A100 and H100 AI-GPU chips. A modest increase in cost of revenue compared to an 86% jump in sales through the first nine months of fiscal 2024 (Nvidia’s fiscal year ended in late January) pretty clearly demonstrates how powerful Nvidia’s pricing power has been. Once this GPU scarcity wanes, its gross margin is liable to decline.
Lastly, every next-big-trend over the past three decades has worked its way through an early-stage bubble. History suggests that investors will overestimate the uptake of AI, just as they have with every previous next-big-thing trend for 30 years.
The Magnificent Seven stock billionaire money managers can’t stop buying: Amazon
There was, however, one Magnificent Seven stock that didn’t have billionaires abandoning ship. During the December-ended quarter, eight billionaires gobbled up shares of e-commerce company Amazon, including (total shares purchased in parentheses):
-
Ken Griffin of Citadel Advisors (4,321,477 shares)
-
Jim Simons of Renaissance Technologies (4,296,466 shares)
-
Chase Coleman of Tiger Global Management (947,440 shares)
-
Ken Fisher of Fisher Asset Management (888,369 shares)
-
David Siegel and John Overdeck of Two Sigma Investments (726,854 shares)
-
Steven Cohen of Point72 Asset Management (462,179 shares)
-
Israel Englander of Millennium Management (85,532 shares)
The lure of Amazon for billionaires is that its business isn’t as reliant on e-commerce as you might think. Although e-commerce accounts for a sizable percentage of Amazon’s sales, online retail sales are low margin. If the U.S. economy were to stumble and online retail sales tapered off, it won’t have much impact on Amazon’s cash flow.
By comparison, the company generates the lion’s share of its operating income from its cloud infrastructure services platform Amazon Web Services (AWS). AWS was responsible for close to a third of global cloud infrastructure service spending in the third quarter of 2023. As long as AWS continues to grow by a double-digit percentage, Amazon’s cash flow can motor substantially higher.
Despite a huge rally in its share price, Amazon remains inexpensive, relative to its cash flow. The reason I’m using cash flow, as opposed to the traditional price-to-earnings ratio, is because Amazon reinvests most of its operating cash flow back into its business. After ending every year of the 2010s at a multiple of between 23 and 37 times its cash flow, Amazon shares can be picked up right now for a little over 12 times forecast cash flow in 2025.
Should you invest $1,000 in Meta Platforms right now?
Before you buy stock in Meta Platforms, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 20, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet, Amazon, Intel, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short February 2024 $47 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 “Magnificent Seven” Stocks Billionaires Are Selling, and the 1 They Can’t Stop Buying was originally published by The Motley Fool
Fool.com contributor Parkev Tatevosian understands investors regret missing out on the meteoric rise of Super Micro Computer (NASDAQ: SMCI) stock. That’s why he’s bringing you another AI stock you can buy at a better price.
*Stock prices used were the afternoon prices of Feb. 19, 2024. The video was published on Feb. 21, 2024.
Should you invest $1,000 in Intel right now?
Before you buy stock in Intel, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 20, 2024
Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.
Missed Out on Super Micro Computer Stock? Buy This Magnificent AI Stock Instead was originally published by The Motley Fool
Traders work on the floor of the New York Stock Exchange during morning trading on January 31, 2024 in New York City.
Michael M. Santiago | Getty Images
The so-called “Magnificent 7” now wields greater financial might than almost every other major country in the world, according to new Deutsche Bank research.
The meteoric rise in the profits and market capitalizations of the Magnificent 7 U.S. tech behemoths — Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla — outstrip those of all listed companies in almost every G20 country, the bank said in a research note Tuesday. Of the non-U.S. G20 countries, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.
Deutsche Bank analysts highlighted that the Magnificent 7’s combined market cap alone would make it the second-largest country stock exchange in the world, double that of Japan in fourth. Microsoft and Apple, individually, have similar market caps to all combined listed companies in each of France, Saudi Arabia and the U.K, they added.
However, this level of concentration has led some analysts to voice concerns over related risks in the U.S. and global stock market.
Jim Reid, Deutsche Bank’s head of global economics and thematic research, cautioned in a follow-up note last week that the U.S. stock market is “rivalling 2000 and 1929 in terms of being its most concentrated in history.”
Deutsche analyzed the trajectories of all 36 companies that have been in the top five most valuable in the S&P 500 since the mid-1960s.
Reid noted that while big companies eventually tended to drop out of the top five as investment trends and profit outlooks evolved, 20 of the 36 that have populated that upper bracket are still in the top 50 today.
“Of the Mag 7 in the current top 5, Microsoft has been there for all but 4 months since 1997. Apple ever present since December 2009, Alphabet for all but two months since August 2012 and Amazon since January 2017. The newest entrant has been Nvidia which has been there since H1 last year,” he said.
Tesla had a run of 13 months in the top five most valuable companies in 2021/22 but is now down to 10th, with the share price having fallen by around 20% since the start of 2024. By contrast, Nvidia’s stock has continued to surge, adding almost 47% since the turn of the year.
“So, at the edges the Mag 7 have some volatility around the position of its members, and you can question their overall valuations, but the core of the group have been the largest and most successful companies in the US and with it the world for many years now,” Reid added.
Could the gains broaden out?
Despite a muted global economic outlook at the start of 2023, stock market returns on Wall Street were impressive, but heavily concentrated among the Magnificent Seven, which benefitted strongly from the AI hype and rate cut expectations.
In a research note last week, wealth manager Evelyn Partners highlighted that the Magnificent 7 returned an incredible 107% over 2023, far outpacing the broader MSCI USA index, which delivered a still healthy but relatively paltry 27% to investors.
Daniel Casali, chief investment strategist at Evelyn Partners, suggested that signs are emerging that opportunities in U.S. stocks could broaden out beyond the 7 megacaps this year for two reasons, the first of which is the resilience of the U.S. economy.
“Despite rising interest rates, company sales and earnings have been resilient. This can be attributed to businesses being more disciplined on managing their costs and households having higher levels of savings built up during the pandemic. In addition, the U.S. labour market is healthy with nearly three million jobs added during 2023,” Casali said.
The second factor is improving margins, which Casali said indicates that companies have adeptly raised prices and passed the impact of higher inflation onto customers.
“Although wages have risen, they haven’t kept pace with those price rises, leading to a decline in employment costs as a proportion of the price of goods and services,” Casali said.
“Factors, including China joining the World Trade Organisation and technological advances, have enabled an increased supply of labour and accessibility to overseas job markets. This has contributed to improving profit margins, supporting earnings growth. We see this trend continuing.”
When the market is so heavily weighted toward a small number of stocks and one particular theme — notably AI — there is a risk of missed investment opportunities, Casali said.
Many of the 493 other S&P 500 stocks have struggled over the past year, but he suggested that some could start to participate in the rally if the two aforementioned factors continue to fuel the economy.
“Given AI-led stocks’ stellar performance in 2023 and the beginning of this year, investors may feel inclined to continue to back them,” he said.
“But, if the rally starts to widen, investors could miss out on other opportunities beyond the Magnificent Seven stocks.”
The markets have dealt with several headwinds over the past few years, yet the S&P 500 has pushed through all that turmoil and is again posting new highs. It’s another reminder that, regardless of how the markets perform in the near term, investors will eventually be rewarded for holding shares of growing companies.
The long-term performance of a stock is highly correlated with the growth of the underlying business. With that in mind, let’s look at three stock picks that Motley Fool contributors believe would make great additions to a long-term investor’s portfolio right now.
MercadoLibre: A perennially undervalued growth stock
John Ballard: One way to grow your money is to look for companies with high growth and plenty of growth runway still ahead. There’s not many stocks that fit this criteria better than the leading e-commerce company in Latin America, MercadoLibre (MELI -0.17%).
A $1,000 investment in the stock 10 years ago would be worth over $17,000 right now. And the same factors that contributed to that growth are still in play. MercadoLibre reported accelerating revenue growth in the third quarter of 2023, growing 69% year over year on a constant-currency basis.
The company is posting such strong growth primarily because e-commerce penetration in three of its largest markets — Brazil, Mexico, and Argentina — is growing at high rates. Retail e-commerce sales across Latin America are projected to reach over $200 billion in 2028, according to Statista, up from just $41 billion in 2017. That’s a massive tailwind for the company.
After investing in its core marketplace business and fintech offerings for many years, the company is also starting to show an improving profit margin. This is a major catalyst to push the stock higher in the near term. Operating income reached $685 million in the third quarter, a year-over-year increase of 194% on a constant-currency basis.
The stock still trades 14% below its previous peak from a few years ago. Investors can expect the stock to hit new highs in the years to come and deliver wealth-building returns.
Airbnb: This could be the online rental platform’s best year yet
Jeremy Bowman: Airbnb (ABNB -3.29%) is no stranger to controversy, as the company has been criticized since its early days for taking housing stock away from local residents and operating as an illegal hotel business. More recently, joking criticism about Airbnb cleaning fees and chore lists has become something of a meme online.
However, it seems as though Airbnb is getting the last laugh. The company just reported a fourth quarter with a 17% year-over-year increase in revenue to $2.22 billion, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved from 27% to 33%.
Airbnb also has adapted its product and business model to satisfy most of the complaints it’s faced. The company changed its pricing display so that guests see the total price upfront, eliminating the bait-and-switch feeling of the cleaning fees. Since it made that move, nearly 300,000 listings have removed or lowered their cleaning fees, and 40% of its active listings now charge no cleaning fee at all.
The company is also growing its supply at a brisk pace, putting to rest concerns of over-saturation that some had dubbed an “Airbnbust.” It topped 5 million hosts for the first time, and total listings rose 18% year over year to 7.7 million active listings, with particularly strong growth in the Asia-Pacific and Latin America regions.
Airbnb has also tamed the regulatory threat, as 80% of its markets had some form of regulation in place as of the end of the year. In New York City, where a strict ban on short-term rentals passed, the company found that stays in nearby areas like New Jersey spiked, and New York hosts have shifted to long-term stays. No city accounts for more than 2% of its revenue, showing how diversified the company is geographically.
Finally, Airbnb promised it would expand beyond the core this year, adding new products. The company will provide more details later in the year, but that could give the stock a jolt just as the broader business is building momentum.
Amazon: One of the greatest investments of all time
Jennifer Saibil: After a rough 2022, 2023 got investors excited again about Amazon (AMZN -0.17%) and its latest earnings update demonstrated incredible progress. The tech giant is back onto its regularly scheduled growth path after a few bumps over the past two years. Sales increased 14% year over year in the 2023 fourth quarter to $170 billion, and they were up 12% for the full year to $575 billion. After reporting its first annual net loss in a decade in 2022 (a drop of $2.7 billion), Amazon completely wiped that out with $30 billion in net income in 2023.
Core e-commerce is back in action, with faster delivery times to its more than 200 million Prime members. That’s a breathtaking amount of people who rely on Amazon for their essentials, and as Amazon wows them and wins their loyalty by offering what’s probably an unmatched selection of merchandise faster than anywhere else, they’re likely to keep coming back.
Amazon Web Service (AWS) is holding steady, with revenue increasing 12% over last year in the fourth quarter. Although that’s still below its pre-inflation rates, management says that trends are moving in the right direction. It continues to ink long-range deals with companies like Nvidia and Salesforce. It has also launched an ambitious array of generative artificial intelligence (AI) tools to stay competitive and keep its dominant position in cloud computing, where it has 31% of the market.
Advertising is its fastest-growing segment right now, increasing 26% year over year in the fourth quarter, and that’s likely to remain a high-growth category. It’s a no-brainer business, as third-party sellers can find buyers when they’re looking to buy, and they benefit from Amazon’s top-notch AI, which brings the right product ads to the right shoppers.
Amazon stock is up 70% over the past year, and it has plenty of growth drivers to keep growing and gaining.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in MercadoLibre and Nvidia. The Motley Fool has positions in and recommends Airbnb, Amazon, MercadoLibre, Nvidia, and Salesforce. The Motley Fool has a disclosure policy.
Many people make it a New Year’s resolution to start investing — a laudable goal. The good news is that doing so doesn’t require millions of dollars in the bank. Even with $500, a relatively modest sum, new and seasoned investors alike can get their hands on solid companies with excellent growth prospects.
In fact, let’s consider two examples: Sarepta Therapeutics (SRPT 0.06%) and Veeva Systems (VEEV 0.99%). A single share of either of these costs well below $500, and both are worth investing in. Let’s dig deeper.
1. Sarepta Therapeutics
Sarepta Therapeutics develops medicines for rare diseases, particularly one known as Duchenne muscular dystrophy (DMD), an inherited condition that causes progressive muscle waste. The biotech’s lineup features four therapies for DMD. Its latest approved treatment, Elevidys, was the most important yet. It is a gene therapy that addresses DMD’s underlying causes and serves as a one-time treatment for eligible patients.
Thanks to the continued adoption of Sarepta’s medicines, the company’s top line is growing at a good clip. The drugmaker expects revenue of $1.145 billion for the full fiscal 2023 period, which would equal an increase of 22.7% compared to the previous fiscal year. That’s partly thanks to Elevidys, which was only approved in mid-2023 and will end the year with $200.4 million in revenue. Developing medicines for DMD has proved difficult, so the fact that Sarepta has four of them on the market is impressive.
The company isn’t stopping there. It will seek label expansions for Elevidys. The biotech also has a pipeline with over 40 programs, many still targeting DMD. Elsewhere, Sarepta recently started a phase 3 study for one of its clinical compounds as a potential treatment for limb-girdle muscular dystrophy, a group of muscle-related diseases. Sarepta Therapeutics’ innovative qualities and deep pipeline should allow it to deliver solid returns.
The company’s shares are changing hands for just under $128 apiece, making $500 good for three of them, with change to spare.
2. Veeva Systems
Veeva Systems provides cloud-based software solutions for the life science industry. The company’s focus has made it popular among many of the largest drugmakers in the world, including Novo Nordisk, AbbVie, Pfizer, Novartis, and many more. Veeva’s strategy is simple. Its cloud-based platform helps address some of the biggest pain points its clients face in developing and testing medical products and eventually marketing them.
Some of these pain points include a labyrinth of regulatory guidelines, the need to safely and accurately record data, and the fact that the process can be slow. The value of the services Veeva provides has generally led to consistent revenue growth, even though it experienced a bit of a slowdown last year. During its latest reporting period — the third quarter of fiscal 2024 ended on Oct. 31 — Veeva’s revenue increased 12% year over year to $616.5 million.
VEEV Revenue (Quarterly YoY Growth) data by YCharts
Veeva Systems’ lower revenue growth rates since mid-2021 are due to a slump in the cloud market, but that shouldn’t matter too much to long-term investors. The company estimates it has a total addressable market of more than $20 billion, of which it has a 12% share. In other words: Veeva has a massive runway for growth ahead. And while there is plenty of competition in the broader cloud industry, it is the leader in this small niche that targets life science companies.
Furthermore, it benefits from switching costs because its clients depend on its services for critical day-to-day activities, making it hard to jump ship without risking data loss, business disruptions, and the possibility of failing to comply with some regulations — a potentially catastrophic event for drugmakers. Veeva Systems’ moat means it should retain a strong position in its industry for a long time while delivering consistently solid financial results and stock market performance.
At a price of almost $219 as of this writing, investors can buy two shares of the company.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Veeva Systems. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
She’s at it again: Cathie Wood, the head of Ark Invest, is snapping up shares of Tesla (TSLA 2.12%) with purchases worth more than $160 million so far in 2024.
Is it a brilliant move or a huge mistake? Here’s what you need to know.
What’s going on
As noted above, Wood and her team have purchased over $160 million worth of Tesla stock since the start of the year. Wood’s flagship fund, the ARK Innovation ETF (ARKK 2.37%), now owns about $640 million of Tesla stock, making the company the fund’s second-largest holding behind Coinbase.
| Ticker | Company Name | Market Value (in millions) | Weight |
|---|---|---|---|
| COIN | Coinbase Global | $628.1 | 8.11% |
| TSLA | Tesla | $626.7 | 8.09% |
| ROKU | Roku | $625.1 | 8.07% |
| PATH | UiPath | $490.1 | 6.33% |
| SQ | Block | $489.6 | 6.32% |
Data from ARK-funds.com as of Feb 7, 2024.
ARK Invest remains bullish that Elon Musk and the rest of Tesla’s management team will find a way out of the predicament they’ve found themselves in following a disappointing fourth-quarter earnings report and weak guidance.
To recap, Tesla’s gross margins continue to crater, reducing its appeal over rival automakers.
Data by YCharts.
Furthermore, the company issued lackluster guidance for vehicle volume growth in 2024, blaming the ramp-up to its next-generation model, which is due in 2025.
At any rate, Wood’s massive bet on Tesla shows that she believes brighter days are ahead for the company. But what’s her exact thesis?
Wood’s Tesla thesis, valuation, and Elon Musk
In short, Wood and her team are taking the long view on Tesla. ARK Invest has a price target of $2,000 on the stock owing to its ability to perfect and monetize its full self-driving (FSD) software. Moreover, Wood believes the company can parlay its FSD breakthroughs into a fleet of robotaxis that could revolutionize transportation, allowing society to rethink how people and cargo move from place to place.
In any event, Wood is placing a big bet on a company with an expensive valuation. Tesla’s shares trade with a price-to-earnings (P/E) multiple of 43, despite the recent sell-off.
Data by YCharts.
Given its valuation, Tesla is not a stock for value investors or those who are income-oriented. Rather, it’s a stock for growth investors with a long time horizon.
However, for those inclined to that investing style, the current dip in Tesla shares may offer an opportunity, one that Wood has already pounced on in the past several weeks. If Musk has proven one thing on his way to becoming the world’s richest person, it’s that he knows how to rally when the chips are down.
Jake Lerch has positions in Tesla. The Motley Fool has positions in and recommends Block, Coinbase Global, Roku, Tesla, and UiPath. The Motley Fool has a disclosure policy.