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 have clung to and made big profits in the five years to 2022. I call them The Sacred Seven. They are alphabetical
GOOGL
AMZN
AAPL
Facebook
MSFT
NFLX
In 2022, all seven stocks were flattened. Here’s what each stock has gained in 2017-2021 and what each stock has lost since I last wrote about them (December 28, 2021).
This column from 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 fell 46.8% from Dec. 28, 2021 to Dec. 23, 2022. Admittedly, it was a down year, with the Standard & Poor’s 500 Total Return Index falling by 18.4%. But the Sacred Seven did much worse.
The two I liked were down 33.1%, better than most of their brethren but much worse than the S&P.
Here’s what I think of the Sacred Seven now.
in the last decade, Alphabet Shares sold for an average of 27 times the company’s earnings per share. Currently, that multiple is below 18. Not bad, I would say, for a company that has grown its earnings by an average of 15% per year over the past decade).
The Company’s subsidiaries include Google
GOOG
I expect to Amazon be a commercial success, but a stock market disappointment in 2023. The business has lost momentum this year as people return to physical stores. I expect it to gain market share in the next few years because people love the convenience of shopping online.
The stock, however, reminds me of IBM
IBM
I still love Apple For the same reasons I did a year ago. His iPhones and Mac computers have a loyal following. I like the company’s $48 billion in cash and marketable securities, and I like the 25% profit margin. At 22 times earnings, the stock is more expensive than I usually prefer, but not extravagant.
In addition to Facebook, Metaplatforms owns Instagram, Messenger and What’s App. It’s a worthy collection of assets, and the stock is selling for only 11 times recent earnings. So I should like it, but I’m lukewarm.
What worries me is that I think much of Facebook’s past success stems from sharing information about its customers with advertisers. I believe regulators will make it harder for Facebook and its brethren to do so. Overall, I think the stock will perform well in the market or slightly better.
A powerhouse in both cloud computing and personal computing, Microsoft boasts a ten-year annual revenue growth rate of almost 17%. Last year, however, it was below 4%. I think future growth will be well over 4% and I think profitability will be excellent.
Alas, the stock is expensive. It sells for almost nine times the company’s turnover. To me, that’s a dangerously high multiple.
The days of rapid subscriber growth for streaming companies seem over, now that we’ve already reached the point where more than half of the programs Americans watch are streaming. To capture market share, many streaming companies including netflixspend a lot on original content.
Netflix has had success with many of its programs, such as The Queen’s Bet, The squid game and lupine. But such shows are very expensive. Netflix’s earnings growth rate over the past decade has been nearly 54%. Last year? Less than 1%.
The first electric car maker is a cult stock. People either love him or hate him – and the same goes for CEO Elon Musk. Of all the sacred seven, You’re here had the best performance in 2017-21 and the worst in the past year. With increasing competition in China and the United States, I think we’re going to have 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.
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