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“Magnificent Seven” stocks dominated the market in 2023. It had the worst performance of the group. apple (AAPL -0.54%)rose 49% and was the highest, Nvidia (NVDA), soared nearly 240%. However, with such a strong record, will there be room for growth in 2024?
Answer: Yes. Some are worth buying even at current prices.
Apple and Nvidia are both praised for their performance
I divide the seven into buy, sell, and hold groups. Starting with the sell set, I think Apple and Nvidia’s stock prices were far outperforming their businesses.
Nvidia’s success in 2023 was driven by the artificial intelligence (AI) arms race, and its business responded as well. Revenue for the third quarter of fiscal 2024 (ending October 29) increased 206% year over year. Additionally, management planned for a 231% increase in fourth-quarter sales to his $20 billion. While the stock price volatility is understandable given the company’s revenue growth, I’m concerned that investors are forgetting that NVIDIA operates in a highly cyclical industry.
Nvidia has had boom and bust cycles, and it’s certainly booming right now. However, it is unclear how many AI data centers will need to be built in the near to medium term. If demand for the company’s high-performance chips is met quickly, the stock could collapse. Furthermore, it trades at a P/E ratio of 65x, which is a fairly high premium.
From a business perspective, Apple is the opposite of Nvidia. The company’s sales declined throughout 2023, but its stock price still soared. This makes little sense and has even more headwinds. This month’s U.S. International Trade Commission order forced Apple to stop importing and selling some Apple Watches due to patent disputes (although a court ruling temporarily allowed them to resume sales). . Considering all this, 2024 could be a tough year for the company. And considering that the valuation of Apple stock is higher than that of the members of the “Magnificent Seven”, alphabet (GOOG -0.25%) (Google -0.39%) and meta platform (meta -1.22%)it doesn’t make much sense to own it compared to its peers.
Microsoft and Tesla need to show me some results
watch microsoft (MSFT 0.20%) and tesla (TSLA -1.86%) The same is true today. Microsoft had a strong year, with revenue and earnings per share (EPS) steadily increasing. However, Microsoft also trades at a very high premium based on future earnings.
MSFT PE ratio data by YCharts.
Microsoft is doing well, but its valuation is a little too high from a historical perspective to be considered a buy. Still, it’s far from being sold.
Tesla is one of the most difficult companies to value on Wall Street because its valuation is wrapped in expectations for its future products. It will also face further headwinds. Starting in 2024, some Tesla models will only qualify for half of the $7,500 federal EV tax credit, depending on where automakers source their battery materials and where they produce them.
When determining whether it’s a good time to buy or sell Tesla stock, I like to look at the price-to-earnings ratio and price-to-sales ratio compared to historical trends. In Tesla’s case, these are trading around the midpoint of valuations seen since mid-2022.
TSLA PE Ratio Data by YCharts
At this price, I don’t think the stock is cheap, so I’m taking a wait-and-see approach to Tesla stock heading into the new year.
Advertising should recover in 2024
This allows Alphabet, Meta Platforms, and Amazon (AMZN -0.94%) It’s in the Buy Now category. These stocks are trading at reasonable levels and are expected to have strong tailwinds next year.
Alphabet and Meta are making AI investments, but most of them are in the advertising business. The advertising market in 2022 and 2023 was significantly weaker as companies cut back on marketing spending due to fears of a recession. But now that they’ve overcome that backlash, Alphabet and Meta are seeing significant growth in their advertising businesses. Advertising revenue increased 9% and 24%, respectively, in the third quarter.
Next year should be another year of strong recovery for the advertising industry, which should help both companies.
Amazon also performed well in 2023, and its profit margin increased.
AMZN Gross Margin Data by YCharts.
However, this chart doesn’t tell the whole story, as it takes into account Amazon’s profits over the past 12 months. Looking at the latest quarterly results, Amazon’s profit margins are nearing (or already at) record highs.
AMZN Gross Margin (Quarterly) data by YCharts.
The fact that Amazon delivered solid results in a historically weak quarter bodes well for the fourth quarter, typically its strongest quarter. Investors don’t know what a fully profitable Amazon will look like, but signs of it could emerge as early as 2024, making it a strong buy now. Dew.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Keithen Drury has held positions at Alphabet, Amazon, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
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