The “Magnificent Seven” stocks — Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla — have notably outperformed the stock market over the last five years. For instance, considering the median performer among this group, Microsoft, boasts a compound annual growth rate (CAGR) of 26% during this period. This figure nearly doubles the return offered by the S&P 500 (15%).
As investors, our focus is on the future rather than dwelling on past achievements. It’s essential to ponder what catalysts could propel an already high-performing stock to greater heights. So, which of these stocks hold the potential to redefine investors’ financial futures? Currently, two contenders have captured my attention.
Image source: Getty Images.
Meta Platforms
One of the “Magnificent Seven” stocks with potential for long-term gains is Meta Platforms.
Meta, the parent company of social networking giants Facebook and Instagram, boasts a user base exceeding 3.3 billion monthly active users (MAUs), approximately 40% of the global population.
With a vast audience engaging with its platforms, Meta garners billions in revenue from advertising placements. For instance, in the second quarter of this year alone, Meta reported $39 billion in revenue, with a staggering 98% stemming from ad sales.
Despite its colossal size and heavy reliance on digital advertising, Meta remains a growth juggernaut. The company witnessed a 22% year-over-year growth in total revenue in its most recent quarter, a remarkable feat for such a behemoth. Since 2014, Meta has consistently delivered an astounding 32% quarterly revenue growth.
META revenue (quarterly YoY growth), data by YCharts; YoY = year over year.
Beyond top-line growth, Meta’s free cash flow (FCF) per share, a key financial metric indicating the cash generated per outstanding share, has exhibited a consistent upward trajectory. Presently, the company boasts $18.82 per share in FCF, a substantial increase from $6.60 less than two years ago.
Leveraging its extensive reach and impressive profit margins, Meta’s business model is poised to continue delivering substantial value to shareholders over the long haul, cementing its status as a stock capable of laying a rock-solid financial foundation for investors.
Alphabet
Much like Meta Platforms, Alphabet stands as a dominant force in the digital advertising arena.
Through its flagship segments Google Search and YouTube, Alphabet rakes in billions in revenue from advertisement placements. In the second quarter, Alphabet posted a total revenue of $85 billion, nearing the $1 billion-mark.
The Profitable Prowess of Alphabet: Unveiling Financial Triumph
Alphabet, the parent company of Google, has been a financial juggernaut, with its revenue soaring to $86 billion per day. Notably, $65 billion of this total stems from advertising on Google Search, Google Network, and YouTube.
The Efficiency Game
What sets Alphabet apart is its remarkable ability to convert revenue into profits. The company’s operating margin stands at 32%, a figure that is the highest in over a decade, well surpassing its 10-year average of 26%.
High profitability is a linchpin for any stock, demonstrating sound operational management and the generation of profits crucial for shareholder value and business expansion.
Navigating Challenges
Despite its stellar financial performance, Alphabet faces challenges such as a recent federal antitrust ruling and market volatility. However, seasoned investors understand that turbulent times often present prime investment opportunities.
As Warren Buffett famously quipped, “Be fearful when others are greedy and greedy when others are fearful.” Given Alphabet’s robust business model and solid operating margin, astute investors should seriously consider the tech giant.
The Investment Conundrum
Before diving into Alphabet stock, ponder this: The Motley Fool Stock Advisor team excludes Alphabet from its list of the 10 best stocks for investors to buy now. Their selected stocks are anticipated to yield substantial returns in the future.
Reflect on Nvidia’s inclusion on a past list, dating back to April 15, 2005. A $1,000 investment made then would have ballooned to an astounding $641,864*, underscoring the potential of strategic investments.
The Stock Advisor service, heralded for its investment insights and regular stock picks, has outperformed the S&P 500 fourfold since 2002*.
For investors seeking guidance on lucrative stock options, explore the 10 recommended stocks.
*Stock Advisor returns as of August 6, 2024
