A Google (Alphabet) office in Chicago. Photo by Interim Archives/Getty Images
People have a number of names for the small group of stocks that investors clung to, and rode to big profits, in the five years preceding 2022. I call them The Sacred Seven. They are Alphabet
In 2022, all seven stocks were flattened. Here’s what each stock gained in 2017-2021, and what each stock has lost since I last wrote about them (December 28, 2021).
This column a year ago was titled Tesla, Apple, Alphabet, Netflix, Amazon: Which Stocks Should You Own? Those two were Alphabet and Apple.
The five stocks I suggested people avoid were down 46.8% from December 28, 2021 through December 23, 2022. To be sure, it was a down year, with the Standard & Poor’s 500 Total Return Index dropping 18.4%. But the Sacred Seven did much worse.
The two I liked were down 33.1%, better than most of their brethren but considerably worse than the S&P.
Here’s what I think of the Sacred Seven now.
In the past decade, Alphabet shares have sold for an average of 27 times the company’s earnings per share. Currently that multiple is below 18. Not bad, I’d say, for a company that has grown its earnings by an average of 15% a year for the past decade).
The company’s subsidiaries include the Google
I expect Amazon to be a business success, but a stock-market disappointment in 2023. The company lost momentum this year as people returned to brick-and-mortar stores. I expect that it will pick up market share in the next few years because people like the convenience of online shopping.
The stock, however, reminds me of IBM
I still like Apple for the same reasons I did a year ago. Its iPhones and Mac computers have a loyal following. I like the company’s $48 billion in cash and marketable securities, and I love the 25% profit margin. At 22 times earnings, the stock is more expensive than I usually prefer, but not outlandish.
In addition to Facebook, Meta Platforms owns Instagram, Messenger and What’s App. That’s a worthy collection of assets, and the stock sells for only 11 times recent earnings. So I should like it, but I’m lukewarm.
What worries me is that I think Facebook’s past success stemmed in large part from sharing information about its customers with advertisers. I believe regulators will make it harder for Facebook and its brethren to do this. All in all, I think the stock will be a market performer or slightly better.
A powerhouse in both cloud computing and personal computing, Microsoft can boast a ten-year annual earnings-growth rate of nearly 17%. Last year, however, it was below 4%. I think future growth will be way above 4%, and I think profitability will be excellent.
Alas, the stock is pricey. It sells for nearly nine times the company’s revenue. To me, that’s a dangerously high multiple.
The days of rapid subscriber growth for streaming companies seem to be over, now that we’ve already reached the point where more than half the programs Americans watch are streamed. To compete for market share, many streaming companies, including Netflix, are spending heavily on original content.
Netflix has had hits with many of its programs, such as The Queen’s Gambit, The Squid Game and Lupin. But such shows cost a lot of money. The earnings growth rate for Netflix in the past decade has been nearly 54%. Last year? Less than 1%.
The leading electric car maker is a cult stock. People adore it or hate it – and the same goes for CEO Elon Musk. Of all the Sacred Seven, Tesla had the best return in 2017-2021, and the worst in the past year. With competition increasing in both China and the U.S., I think it’s in for another tough year.
Disclosure: I own Alphabet and Apple personally and for most of my clients. My wife and colleague Katharine Davidge owns Microsoft personally and for several clients.
Source: https://www.forbes.com/sites/johndorfman/2022/12/26/stock-buys-among-tesla-apple-amazon-alphabet-netflix-microsoft-and-meta/