A group of large technology companies deemed the "Magnificent Seven" has broadly defined investing success over the past decade. If you held any of these stocks, you'd probably be thrilled with your investment returns.
While many of the Magnificent Seven stocks are now worth over a trillion dollars and likely won't repeat their same growth over the next 10 years, some can still make you richer over time.
Here are my top three picks of this group to buy and hold indefinitely.
1. Amazon
Most everyone knows about e-commerce giant Amazon (AMZN 0.58%) which dominates online shopping and accounts for 38% of the market in America. Many people may even know that Amazon operates the world's leading cloud platform, AWS, a virtual underpinning of the internet today. Fewer people probably realize that Amazon has become a tremendous advertising company. Its ad business grew 24% year over year in the first quarter and is on pace for $45 billion this year.
No company in history might be as good as Amazon at finding ways to enter and dominate new markets. How does a company go from selling books online to selling everything to over 200 million Prime subscribers? How does an online bookstore start and beat tech-focused competitors to become the leading cloud platform? Now, investors are beginning to see just how big Amazon's ad business is becoming. It's truly remarkable.
That's especially so because all of these markets have years of growth ahead. E-commerce is still just 22% of total U.S. retail. Amazon Web Services is still growing well into the double digits; it just rose 17% year over year in Q1, and that's not likely to slow down with artificial intelligence (AI) taking off. Amazon's ad business is now its fastest-growing segment, so it probably still has years of expansion ahead. Buy and hold Amazon. It's boring but consistently delivers.
2. Meta Platforms
Everyone seems to have social media, but Meta Platforms (META -0.28%) continues to grow its user base. Over the past three months, the company racked up another 50 million daily active users across its family of apps: Facebook, Instagram, WhatsApp, and Threads. That's now 3.24 billion people logging on each day. Meta makes money (lots of it) by selling digital ads to companies. It's also remarkably lucrative; about $0.35 of every revenue dollar is free cash flow. Meta's trailing-12-month revenue is $142 billion, which shows you how much cash that is.
Meta just started paying a dividend and famously repurchases a ton of stock to help further boost earnings-per-share. That financial engineering alone could make you wealthier over the long term. Investors believe the company's earnings can grow by an average of 19% annually over the next three to five years, so a slowdown doesn't appear in the cards.
Lastly, Meta's CEO, Mark Zuckerberg, is still just about 40 years old, making him young enough to continue leading the company for decades into the future if he chooses. Zuckerberg has pushed the company to invest billions into AI development, sometimes turning Wall Street off. Still, if these investments prove fruitful, they could cement the growth of the next generation of Meta investors.
3. Microsoft
Microsoft (MSFT -0.18%), a household name and tech giant, is the oldest of this group by far. The company's roots go back to the modern PC, and it's a testament to the company that its legacy businesses remain influential today. Over the years, management has branched the company into new markets, like cloud computing, gaming, and AI. It's partnered successfully with OpenAI, arguably the most innovative AI developer.
Analysts believe Microsoft's earnings will grow by an average of "just" 16% annually over the next three to five years, which is still plenty to do some excellent work for your portfolio. Notably, Microsoft might be the safest stock you can own. It boasts an AAA credit rating, higher than the U.S. government and one of only two public companies with such a strong rating.
Microsoft is also a well-known dividend growth stock with 22 consecutive increases. The stock's dividend yield is 0.7% today but has grown by an average of 10% annually over the past five years. The payout only takes up 30% of cash flow, so there is plenty of room for future growth. Investors don't have to overthink Microsoft's diverse business. Buy, hold, and reinvest the dividends for years to come.
