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 example, the median performer out of the group, Microsoft, has a compound annual growth rate (CAGR) of 26% during this period. That’s nearly double the return generated by the S&P 500 (15%).
But investing means looking forward, not backward, and it’s always important to ask what would drive a highflying stock even higher. So, which of these stocks could help set investors up for life? Here are the two I have my eye on right now.
Meta Platforms
The first Magnificent Seven stock that can help set investors up for life is Meta Platforms.
Meta, which operates social networks including Facebook and Instagram, has more than 3.3 billion monthly active users (MAUs). That’s equal to roughly 40% of the total world population.
With so many people accessing its platforms, it’s no wonder that the company makes billions off ad placement on its networks. In this year’s second quarter, Meta reported $39 billion in revenue, and almost all of it — some 98% — came from ad sales.
Yet, despite its massive size and singular focus on digital advertising, it remains an unstoppable growth engine. The company grew its total revenue 22% year over year in its most recent quarter, which is outstanding for such a large business. Indeed, it has averaged an incredible 32% quarterly revenue growth dating back to 2014.
What’s more, Meta isn’t just growing its top-line numbers. Take free cash flow (FCF) per share, a crucial financial metric that shows how much cash a company is generating on a per share basis. Meta’s free cash flow per share has been steadily rising. The company now generates $18.82 per share in FCF, up from $6.60 less than two years ago.
That’s crucial for investors because FCF per share measures how much money a business is generating, which can then be spent on dividend payments, share buybacks, debt reduction, and other purposes. In other words, it gives a company’s leadership the ability to deliver value to shareholders.
Thanks to its immense scale and fat profit margins, Meta’s business model is likely to continue delivering shareholder value for many years to come. That makes it a stock that could help set investors up for life.
Alphabet
Similar to Meta Platforms, Alphabet is a major player in the digital advertising market.
Through its Google Search and YouTube segments, the company generates hundreds of billions in ad-based revenue. In the second quarter, Alphabet recorded $85 billion in total revenue. That’s nearly $1 billion per day. And $65 billion, or 76%, of this total came from advertising on Google Search, Google Network, and YouTube.
What’s truly impressive is how efficient Alphabet is at turning its revenue into profits. The company’s operating margin is 32%, the highest in more than a decade and well above its 10-year average of 26%.
High profitability is key for any stock. It indicates that a company is managing its operations well and is producing profits that can then be used to deliver shareholder value or grow its business.
Granted, Alphabet has its challenges, including a recent federal antitrust ruling that is working its way through the courts and the general market volatility that has skyrocketed in recent weeks.
But long-term investors should remember that uncertain times are in many ways the best times to invest. Warren Buffett famously said that to the extent investors should follow their emotions, it’s better to be fearful when others are greedy and greedy when others are fearful. Given Alphabet’s excellent business model and solid operating margin, smart investors should be giving the internet giant a serious look.
Should you invest $1,000 in Alphabet right now?
Before you buy stock in Alphabet, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $641,864!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 6, 2024
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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 “Magnificent Seven” Stocks That Could Help Set You Up for Life was originally published by The Motley Fool