Investing in the stock market is a wonderful way to build long-term wealth. But while you might think you need huge sums of capital, that's simply not true. Even relatively modest amounts of money can still get you started.
With $1,000 ready to put to work, investors should look no further than Alphabet (GOOGL 0.54%) (GOOG 0.51%) and Meta Platforms (META 0.73%). About three shares of the former can be purchased, while investors can snag one share of the social media powerhouse. Let's take a closer look at these two "Magnificent Seven" businesses.
Dominating the tech sector
Alphabet and Meta are two of the most valuable companies on earth. And this position has come from them both dominating the tech sector.
Alphabet has an impressive lineup of internet products and services, ranging from Search and Gmail to Android and YouTube, for example. Meta, on the other hand, operates a family of social media apps that combined have almost 3.3 billion daily active users.
This unmatched reach and user attention has turned both companies into digital advertising juggernauts. Combined, they command 47% of the U.S. market. Given that the industry is projected to see annualized growth of almost 16% on a worldwide basis through the end of the decade, according to Grand View Research, these businesses have a powerful secular trend working in their favor.
In the past five years, Alphabet and Meta have increased their revenue at average yearly rates of 16.8% and 18.3%, respectively. It's not a stretch to think that double-digit top-line gains could continue for several years.
Superb financials
There are many companies that are in trouble financially. This could mean they have unsustainable debt loads, or that they simply aren't profitable. Fortunately, Alphabet and Meta don't have any of these issues. In fact, they are some of the most financially sound enterprises on the face of the planet. Both have incredibly strong balance sheets with huge net cash positions.
To be fair, many younger tech-focused businesses aren't profitable because they are investing so heavily into growth. And the goal is to generate positive earnings at some point in the future. That reasoning makes sense, but a favorable outcome is always far from certain.
Things are different in this instance, though. Because Alphabet and Meta are already scaled platforms, with huge revenue and established business models that benefit from network effects, they are seeing the benefits on the bottom line. They generate sizable earnings on a consistent basis, with operating margins that exceeded 30% last quarter.
This allows them to invest heavily in AI initiatives, mainly around building out data centers and other network infrastructure to handle the higher workload. While the ultimate payoff of these efforts remains a question mark, Alphabet and Meta can easily afford the capital expenditures, while also paying dividends and buying back lots of outstanding shares.
Don't forget valuation
Another variable that can't be skipped when looking at an investment is the valuation. Investors have even more reason to be bullish with this in mind. No matter how wonderful a business looks, if you overpay, forward returns can be disappointing.
On a forward price-to-earnings basis, these two stocks still look like compelling buys, even after their impressive gains in the past 20 months. Alphabet's multiple of 22 and Meta's multiple of 25 might not be as attractive as they were at the start of 2023, but they are still very reasonable.
The market is presenting investors with a solid opportunity to buy a couple of the best companies out there. Investing $1,000 in their stocks is a smart move.
