The "Magnificent Seven" stocks have been some of the top performers in the market in recent years. This group consists of some of the largest companies listed in the U.S. markets. They are:
- Microsoft (NASDAQ: MSFT)
- Apple (NASDAQ: AAPL)
- Nvidia (NASDAQ: NVDA)
- Amazon (AMZN 3.43%)
- Alphabet (GOOG 9.96%) (GOOGL 10.22%)
- Meta Platforms (META 0.43%)
- Tesla (TSLA -1.11%)
Of the seven, I think only four are great buys right now. So, where does the split occur?
I'm not a buyer of these three right now
Microsoft and Apple are at the top of the list of those I'm passing on. Microsoft is excelling as a business, but the stock has gotten a bit pricey. Tipping the scales at 35 times forward earnings, Microsoft is one of the most expensive of the group that is optimized for profits.
Apple has struggled recently as its revenue shrank for four straight quarters before growing again in its latest quarter, but only by 2%.Apple's woes are expected to continue, as Wall Street analysts project 1.3% sales growth this fiscal year and 6.5% next year.
These two are at the bottom of my list, but the next stock is teetering on a buy.
Nvidia has been the best performer by far of the group, and there is a lot of hype built up in the stock. But that's for good reason. The demand for Nvidia's graphics processing units (GPUs) has been off the charts, as highlighted by Nvidia's 265% year-over-year revenue growth in Q4 of fiscal year 2024. The stock is actually cheaper than Microsoft (33 times forward earnings), making it a potential buy.
But Nvidia isn't as tantalizing as the other four.
These four are much more attractive
That leaves Amazon, Alphabet, Tesla, and Meta Platforms remaining as buys. All of these have different reasons to buy. For Amazon, its margins have been increasing thanks to the rise of its service divisions.
AMZN Gross Profit Margin (Quarterly) data by YCharts.
This has allowed its profits to climb dramatically alongside its rising revenue. Despite this success, it trades at its lowest price-to-sales ratio since 2020. This makes me confident that the best days are still ahead of Amazon.
Alphabet has had its fair share of stumbles in its artificial intelligence (AI) rollout, which hasn't helped the stock. But it's still a dominant power in advertising and cloud computing, which helped it grow its revenue by 13% in Q4. However, Alphabet is the cheapest stock on this list, trading at 20.3 times forward earnings.
That's cheaper than the 20.4 times forward earnings the S&P 500 trades at, making Alphabet a cheaper stock than the broader market. That's an absolute bargain, making it a fantastic buy.
Meta Platforms has turned its business around after struggling in late 2022. Like Alphabet, its advertising wing has turned itself around, driving revenue growth of 25% in Q4. Wall Street analysts project another strong 2024, projecting 17% revenue growth. With the stock trading at 25 times forward earnings, it's not the cheapest, but it's still a solid buy at that price point.
Lastly is Tesla, which I may consider swapping with Nvidia. Tesla has been whacked since 2024 began, falling nearly 20%.
Some of this concern comes from falling margins and slowing revenue growth. While this is a fair assessment, it also ignores some of the interest rate headwinds buyers are experiencing. Still, management was clear in the conference call that they're between growth waves, so this year may be tough.
But if you take the long-term view, Tesla's stock is the cheapest it has been in a year, although, at 63 times forward earnings, it's still pricey. If you've missed the Tesla boat, now might be a good time to hop in.
While the Magnificent Seven stocks won't have the same performance they had in 2023 going forward, some are still strong buys and have market-beating potential.
