Welcome to Episode #428 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds, and ETFs and how it impacts your life.
This week, Tracey is going solo to discuss the Magnificent 7 stocks which are Apple, NVIDIA, Alphabet, Meta Platforms, Amazon.com, Tesla and Microsoft Corp.
From FAANG to the Magnificent 7
In prior years, the hottest group of big cap stocks were called the FAANG stocks and then expanded to be FANGMAN. FANGMAN included Netflix. But in the last few years, FANGMAN petered out as Netflix was kicked out of the group and Tesla was added.
This new group of big cap growth stocks was tagged “the Magnificent 7” and so now, here we are heading into 2025, with this group of 7 big-cap high growth companies leading the way.
As a group, the Magnificent 7 has outperformed the S&P 500 in 2024. The Roundhill Magnificent 7 ETF (MAGS) is up 69% year-to-date. The question then, is, how much more is left in the tank?
Not every stock in the Mag 7 has the same fundamentals. Some are very expensive. Tesla has a forward P/E of 176. But some are also attractively priced. Alphabet has a Price-to-Book ratio of 7.4.
If you want to own some of the individual stocks, and not the group of them, which Mag 7 stocks are the most attractive for 2025?
3 Magnificent 7 Stocks to Buy in 2025
1. Alphabet Inc. (GOOGL)
Alphabet Inc. is the cheapest of the Mag 7 stocks by the price-to-earnings (P/E) ratio. It has a forward P/E of 23.9. That does not mean Alphabet is a “value” stock, however, as value stocks usually have a P/E under 15. But compared to its Mag 7 peers, it is cheap.
Shares of Alphabet have jumped 39% year-to-date and have hit new all-time highs. But earnings are expected to rise 38.3% in 2024 and another 11.1% in 2025. Alphabet has hidden gem businesses, like YouTube, which has generated $50 billion in revenue the last 4 quarters.
Alphabet now pays a dividend, yielding 0.4%.
Should Alphabet be on your short list for 2025?
2. Meta Platforms, Inc. (META)
Meta Platforms has been overshadowed by NVIDIA in 2024. Shares of the social media giant are up 69% year-to-date, easily beating the S&P 500.
Earnings for Meta Platforms are expected to soar 52.5% in 2024 and another 11% in 2025. Yet, Meta Platforms remains attractively priced with a forward P/E of just 25.8. It also has a PEG ratio of just 1.3. A PEG ratio measures the P/E over growth. A PEG under 1.0 indicates a company has both growth and value, which is rare. A PEG of 1.3 is attractive.
Meta Platforms is also now paying a dividend, yielding 0.3%. If you are a long-term investor, even small amounts add up big due to the power of compounding.
Should Meta Platforms be on your short list for 2025?
3. Amazon.com Inc. (AMZN)
Amazon.com has sought to be the “everything store” but is now the “everything company” with its AWS division, Whole Foods, sports and entertainment programming on Prime and now a foray into chip manufacturing and services.
Earnings at Amazon are expected to rise a stunning 79% in 2024 and another 20% in 2025. Yet, the company is still cheap compared to its peers.
Amazon trades with the lowest price-to-sales (P/S) ratio of the Mag 7 stocks at 3.8. While that’s not a value, which looks for P/S ratios under 1.0, it is attractive for a growth company. For comparison, Microsoft has a P/S ratio of 13.1 and NVIDIA’s is 29. A P/S ratio over 10 is considered expensive.
Should Amazon.com be on your short list for 2025?
What Else Do You Need to Know About the Best Magnificent 7 Stocks for 2025?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of AMZN, MSFT, GOOGL in her personal portfolio.]
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