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Investing Preview 2024: Buy These 4 “Magnificent Seven” Stocks. Avoid the Others.

Investing Preview 2024: Buy These 4 “Magnificent Seven” Stocks. Avoid the Others.

Any investment exposure to “Magnificent Seven” shares made your 2023 investment year a great success. This group of mega-cap technology stocks, including Nvidia (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), You’re here (NASDAQ:TSLA), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Metaplatforms (NASDAQ:META)And Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL)outperformed the overall market despite the Nasdaq Composite up more than 45% in the last year.

If it ain’t broke, don’t fix it…right? Well, not exactly. A look at the numbers indicates that some of these truly magnificent titles may soon run out of steam. Here are the four stocks in this group that are worth buying in 2024, and the three to leave behind in 2023.

1. Nvidia: Buy

Nvidia’s chips, specializing in demanding and demanding applications, have become a focal point of the artificial intelligence (AI) breakthrough. The company quickly established its dominance, controlling up to 90% of the AI ​​chip market. This propelled the company to new heights, accelerating revenue growth to 200% year-over-year in its most recent quarter, reaching $18 billion.

Investing Preview 2024: Buy These 4 “Magnificent Seven” Stocks. Avoid the Others.

NVDA PE Ratio Chart (Forward)

The demand for AI doesn’t seem to be going anywhere, which should create strong growth for Nvidia in the future. Analysts estimate that the company’s earnings will grow 42% annually over the next few years, arguably justifying Nvidia’s valuation at 40 times 2023 earnings. This represents a PEG ratio of just 1, indicating that the stock is still attractive despite its massive 250% rise in 2023.

2. Apple: to avoid

Not all of the Magnificent Seven companies have grown enough to keep pace with their stocks. Apple’s revenue has fallen over the past year and net profit has increased just 1%. Apple’s business can be cyclical, oscillating between periods of growth based on key iPhone releases. That’s all well and good, but it can complicate things when stock prices and operating results go in different directions.

AAPL PE Ratio Chart (Forward)AAPL PE Ratio Chart (Forward)

AAPL PE Ratio Chart (Forward)

Analysts have lowered their growth expectations for Apple. At over 29 times 2023 earnings, that PEG ratio above 3 makes buying Apple here a tough pill to swallow. Investors should wait until the price makes sense again.

3. Metaplatforms: buy

Wall Street was down on Meta in 2022, when the company struggled with a slowdown in its advertising business, privacy-damaging changes to iPhones, and expensive metaverse projects that showed no return on investment. Shares fell to $89 before CEO Mark Zuckerberg righted the ship by cutting costs, addressing iPhone challenges and achieving revenue and profit growth. back on track.

META PE Ratio Chart (Forward)META PE Ratio Chart (Forward)

META PE Ratio Chart (Forward)

Surprisingly, the stock remains attractive at just 25 times 2023 earnings, with annual growth expected to average 20% going forward. It turns out that Meta is still a great company, and Wall Street has largely forgotten about it. The 2023 rally has ended the pessimism, but there is still room for growth that Meta can achieve in 2024 and beyond.

4. Microsoft: to avoid

ChatGPT made a splash in 2023, and Microsoft quickly jumped on board, teaming up with its creator, OpenAI, with a multibillion-dollar investment and extensive partnership. Between enterprise software, cloud computing, gaming and more, Microsoft is one of the largest and most diverse technology companies in the world. Its positioning in the cloud amid AI opportunities has apparently boosted analysts’ expectations for its earnings growth in the coming years.

MSFT PE Ratio Chart (Forward)MSFT PE Ratio Chart (Forward)

MSFT PE Ratio Chart (Forward)

Growth of around 15% is nothing to sneeze at, but it’s becoming increasingly difficult to call Microsoft a growth stock with its $2.8 trillion market cap. With a forward P/E above 33, the stock’s PEG ratio above 2 is not as attractive as some other Magnificent Seven stocks.

It’s not horribly expensive, but after its 57% gallop in just one year, there are better deals out there. There’s nothing wrong with investors being picky.

5. Amazon: Buy

Interestingly, e-commerce and cloud leader Amazon trades at a similar PEG ratio to Microsoft of just over 2. So why should investors consider buying Amazon rather than Microsoft, whose valuation is similar? Amazon is famous for investing its profits in the company, which may underestimate its true profit potential. The stock trades at 57 times net income, but just 22 times operating profit, which represents the profit from day-to-day operations.

AMZN PE Ratio Chart (Forward)AMZN PE Ratio Chart (Forward)

AMZN PE Ratio Chart (Forward)

Over the past decade, this figure is more than 20% lower than Amazon’s average price-to-operating cash flow ratio. Amazon has a lot of work to do, including investing in the development of its AI technology, a critical ingredient for its future. This does not concern e-commerce, which still has room to grow in the coming decades (e-commerce only represents 15% of retail in the United States).

6. Tesla: to avoid

Electric vehicle and energy company Tesla is another example of stock prices and fundamentals going in opposite directions. Tesla began cutting prices in 2023 to boost unit sales. The idea is that more units manufactured and sold will allow Tesla to lower its prices, a cycle that will eliminate competitors from the market. This was a bold move that had short-term consequences for Tesla’s operating results. Gross profit margin is down 22% over the past year.

TSLA PE Ratio Chart (Forward)TSLA PE Ratio Chart (Forward)

TSLA PE Ratio Chart (Forward)

Hopefully, unit sales will increase enough that Tesla can soon realize the cost savings it’s striving for. Analysts have aggressively lowered their expectations for Tesla’s future profit growth due to price cuts. If analysts are right, Tesla stock has become much more expensive with a PEG ratio above 4. After the stock rallied 130% last year, investors might be better off waiting to buy until the numbers prove that Tesla is right in its price reduction strategy.

7. Alphabet: Buy

Alphabet’s dominance over Google and YouTube overshadows its behind-the-scenes potential in AI. The company leverages AI to help its clients maximize their ad spend on its platforms (which is how Alphabet makes most of its money). Its enormous amount of user data and leading position among the world’s busiest websites make Alphabet a boring but effective money-printing machine.

GOOGL PE Ratio Chart (Forward)GOOGL PE Ratio Chart (Forward)

GOOGL PE Ratio Chart (Forward)

The company is spending much of that cash flow buying back tons of stock, reducing the number of shares outstanding by 10% over the past five years. This recipe for growth and buybacks leads analysts to expect earnings to reach a compound annual rate of more than 17%. The stock’s 57% rise in 2023 has boosted its valuation, but it remains a solid deal for long-term investors with a PEG ratio of 1.4.

Should you invest $1,000 in Nvidia 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool has a disclosure policy.

2024 Investment Overview: Buy These 4 Stocks From The Magnificent Seven. Avoid others. was originally published by The Motley Fool

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