THE Dow Jones Industrial Average (DJ CLUES: ^ DJI) fell into a bear market in January 2022. The widely followed blue-chip index fell as much as 22% over the year as recession fears spread across Wall Street. But with confidence in the economy rebounding, the Dow recently hit a new record high, signaling the start of a new bull market. This suggests a more bullish dynamic.
Historically, the average Dow bull market lasted nearly five years, during which time the index returned 172%. Investors looking to exploit these gains should consider adding a few stocks Microsoft (NASDAQ:MSFT) And Visa (NYSE:V) to their wallets. The shares enjoy a “buy” consensus rating among Wall Street analysts, and neither has a sell recommendation at this time.
Here’s what investors should know about these highly recommended growth stocks.
Microsoft is present in several sectors. Its businesses include Xbox consoles and other devices, as well as video games and subscription gaming services. But enterprise software and cloud computing are its biggest growth drivers, and the company has a strong position in both markets.
Microsoft collected 16.4% of global sales, the industry leader software as a service (SaaS) in 2022, almost twice that of its closest competitor Selling power. And its cloud platform, Microsoft Azure, accounted for 23% of infrastructure and cloud platform services revenue in the third quarter, putting the company firmly in second place behind Amazon Web Services.
Microsoft sees growth opportunities around artificial intelligence (AI) in both markets. For example, the company recently launched Microsoft 365 Copilot, a natural language interface that automates workflows in office productivity applications such as Word, PowerPoint and Excel. Likewise, Microsoft Azure has an exclusive partnership with OpenAI, making it the only cloud provider to offer access to machine learning models like GPT-4, one of the engines behind ChatGPT.
Microsoft reported impressive financial results during its first quarter of fiscal 2024 (ended September 30), beating Wall Street expectations for both revenue and bottom line. Revenue rose 13% to $56.5 billion, driven by particularly strong growth in cloud services sales, although enterprise software also contributed to the revenue momentum. And GAAP net income soared 27% to $2.99 per share on disciplined expense management, even as the company continued to invest in AI infrastructure.
Looking ahead, the enterprise SaaS and cloud computing markets are expected to grow 14% annually through 2030, according to Grand View Research. Microsoft should be able to match that pace given its strong presence in both areas, meaning the company has a good chance of achieving double-digit revenue growth through the end of the decade .
With this in mind, its current valuation of 12.8 times sales seems tolerable, although it represents a premium over the three-year average of 11.4 times sales. Microsoft is a blue-chip company well-positioned to monetize AI. Actually, Morgan Stanley Analyst Keith Weiss sees Microsoft as the software company “best positioned” to benefit from the growing demand for generative AI.
Investors who want to get in on this stock will likely have to pay a premium, and now is a reasonable time to buy the stock.
Visa operates the world’s largest payments network. Its platform accounted for nearly 39% of card purchase transactions in 2022, about five percentage points more than UnionPay and 15 percentage points more than MasterCard. This scale not only creates a powerful network effect, but also provides the company with a significant cost advantage.
Specifically, Visa can spread its expenses across more transactions than its peers, so the company consistently achieves higher margins. This strong profitability allows Visa to reinvest more aggressively in growth, effectively strengthening its leadership. Some of this reinvested capital is being channeled into innovations in consumer payments, but the company is also seeking opportunities in what management calls “new streams” (e.g., account-based commercial payments and employee payments) and value-added services (e.g. risk management solutions). ).
Visa announced that it ended its 2023 fiscal year in September with strong financial results. Fourth-quarter revenue increased 11% to $8.6 billion, reflecting modest sales growth in consumer payments and more pronounced sales growth in new streams and value-added services . Visa also reported non-GAAP net income of $2.33 per share, up 21% from the prior year.
According to McKinsey & Co, global payments revenue is expected to grow 7% annually through 2027. Visa has historically grown faster than the broader industry, and investors should expect similar outperformance to the ‘future. Analysts at The morning star expect 10% annual revenue growth over the next five years.
Visa’s current valuation of 16.5 times sales is below its three-year average of 18.1. Patient investors should feel confident buying shares of this growth stock today.
Should you invest $1,000 in Microsoft right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennevine holds positions at Amazon, Mastercard and Visa. The Motley Fool features and recommends Amazon, Mastercard, Microsoft, Salesforce, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Mad Motley has a disclosure policy.
Dow Jones Bull Market: 2 Highly Recommended Growth Stocks to Buy Now, According to Wall Street was originally published by The Motley Fool