The “Magnificent Seven” stocks dominated the market in 2023. The worst performer of the group, Apple (NASDAQ:AAPL)increased by 49%, and the best, Nvidia (NASDAQ:NVDA), jumped nearly 240%. But with such strong runs behind them, do any of them still have room to grow in 2024?
The answer: Yes, and some are still worth buying at their current prices.
Both Apple and Nvidia are highly praised for their performance
I divide the seven into buy, sell and hold groups. Starting with the sell-off, I think Apple and Nvidia’s stock prices have significantly outperformed their businesses.
Nvidia’s success in 2023 has been driven by the artificial intelligence (AI) arms race, and its business has responded accordingly. During the third quarter of fiscal 2024 (which ended October 29), revenue increased 206% year over year. Additionally, management expects fourth-quarter revenue of $20 billion, up 231%. The stock’s move was justified given the company’s sales growth, but I worry that investors are forgetting that Nvidia operates in a cyclical industry.
Nvidia goes through boom and bust cycles, and right now it’s definitely a boom. However, it is unclear how many AI data centers will need to be built in the short to medium term. If demand for its high-power chips is met soon, the stock could fall back to earth. Plus, it trades at 65 times earnings, a pretty steep premium.
From a business perspective, Apple is the opposite of Nvidia. Its sales have declined throughout 2023. Despite this, its stock has skyrocketed. That doesn’t make sense, and other headwinds are looming: An order from the U.S. International Trade Commission this month forced Apple to suspend the importation and sale of certain Apple Watches due to a patent litigation (although a court ruling temporarily allowed sales to resume). Considering all of this, 2024 could be a tough year for the company. And given that Apple stock has a higher valuation than members of the “Magnificent Seven” Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) And Metaplatforms (NASDAQ:META)it doesn’t make much sense to own him compared to his peers.
Microsoft and Tesla need to show me some results
I see Microsoft (NASDAQ:MSFT) And You’re here (NASDAQ:TSLA) as is the case now. Microsoft had a good year, as its revenues and earnings per share (EPS) has increased steadily. However, Microsoft is trading at a steep premium even based on forward earnings.
Microsoft is doing well, but its valuation is a little too high from a historical point of view to consider a purchase. Still, it’s far from a sale.
Tesla is one of the most difficult companies to value on Wall Street because its valuation depends on expectations for future products. It is also expected to face additional headwinds. From 2024, some Tesla models will only qualify for half of the $7,500 federal electric vehicle tax credit due to where the automaker sources materials for its batteries and where it produces them.
To judge whether a given time is the best time to buy or sell Tesla stock, I like to look at its price-to-earnings and price-to-sales ratio compared to historical trends. For Tesla, these are trading around the midpoint of valuations seen since mid-2022.
I’m taking a wait-and-see approach to Tesla stock heading into the new year, as the shares don’t appear to be a bargain at these prices.
Advertising expected to rebound in 2024
This leaves Alphabet, Meta Platforms and Amazon (NASDAQ:AMZN) in the Buy Now category. These stocks are trading at reasonable levels and expect strong tailwinds next year.
Even though Alphabet and Meta are investing in AI, they are primarily advertising companies. In 2022 and 2023, the advertising market was quite weak as companies cut back on marketing spending due to fears of a recession. However, now that we have overcome this setback, Alphabet and Meta are showing significant growth in their advertising businesses. Their advertising revenues increased by 9% and 24% respectively in the third quarter.
Next year is expected to be another year of strong recovery for advertising, which will boost both companies.
Amazon also had a strong 2023, with margins increasing.
However, this chart doesn’t tell the whole story, as it takes into account Amazon’s profits over the last 12 months. If we focus on its latest quarterly results, Amazon’s margins are approaching (or have already reached) all-time highs.
The fact that Amazon posted strong results during historically weak quarters bodes well for the fourth quarter, which is typically its strongest. No investor knows what a fully profitable Amazon looks like, but 2024 could give us a glimpse, making it a worthwhile buy right now.
Should you invest $1,000 in Nvidia right now?
Before buying Nvidia stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Nvidia wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor The service has more than tripled the performance of the S&P 500 since 2002*.
*Stock Advisor returns December 18, 2023
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. 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. Keithen Drury holds positions in Alphabet, Amazon and Tesla. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool has a disclosure policy.
Which “Magnificent Seven” stocks are hotly bought right now? was originally published by The Motley Fool