We recently compiled a list of the 12 Best Forever Stocks To Buy Now. In this article, we are going to take a look at where Meta Platforms Inc (NASDAQ:META) stands against the other forever stocks to buy now.
Investment opportunities are increasingly cropping up as volatility in the equity markets edge higher in response to changes in the investment environment. Investors have had to tweak their portfolios as global central banks tweak their monetary policies in response to slowing inflationary pressure.
Uncertainty over the upcoming US election is another headwind that is fuelling volatility in the markets. Geopolitical tensions, especially in the Middle East, have also weighed significantly, forcing some investors to resort to defensive investment plays.
READ ALSO: 12 Best Long-Term Stocks to Buy According To Warren Buffett and 10 Best Debt-Free Penny Stocks to Buy Now.
Nevertheless, the array of disappointing economic data led by weakness in the labor market has raised serious doubts about whether the US economy is overheating amid the high interest rates. With the economy creating partly 142,000 jobs and the unemployment rate at 4.25% in August, serious doubts were cast about the resilience of the US economy.
Investors need help understanding the state of the US economy, which had decelerated from the rapid expansion it experienced right after the pandemic when companies rushed to reopen and recruit new employees.
Reducing inflation has provided some relief for families struggling with rising costs. However, the job market has also slowed down, with fewer people being hired, wages increasing at a slower pace, and the duration of unemployment increasing as it becomes harder to secure employment.
A survey carried out by CNBC indicates that the probability of the US economy experiencing a soft landing stands at 53% as the US Federal Reserve starts its interest rate cut cycle. According to Michael Englund of Action Economics, the US economy is growing much faster than expected, even as it stares at economic risks on the horizon.
Source: pexels
However, there is also a probability that the economy will plunge into recession at 36%, owing to the negative effects of the high interest rates. According to Diane Swonk, chief economist at KPMG US, Federal Reserve chair Jerome Power’s legacy highly depends on him engineering a soft landing after keeping interest rates high for too long.
Analysts and economists share mixed opinions on whether the economy needs 25 or 50 basis points to start with to cure the effects of the high interest rate environment. The argument for beginning with a smaller cut is based on the assumption that the economy is fundamentally sound, as current and former FED officials argue.
They argue that starting with a 50-basis-point reduction could signal a deeper concern over the economy. It could prompt investors to expect quicker rate reductions, which could spark market booms that complicate efforts to combat inflation.
On the other hand, a bigger reduction might cause investors to believe wrongly that the Fed intends to lower rates by the same amount at its meetings in November and December. This could create an expectation that the Fed would move swiftly towards a neutral interest rate target, which is meant to neither stimulate nor decelerate economic growth, according to James Bullard, who served as the president of the St. Louis Fed from 2008 to 2023.
Amid the monetary policy uncertainty and economic growth slowdown concerns, the US equity market has remained resilient and supported by solid financial results. The S&P 500 rallying by double percentage points affirms growing investor sentiment.
The artificial intelligence frenzy has been one of the main catalysts driving sentiments in the equity markets. Some stocks with exposure to AI have rallied by more than 50%. On the other hand, the FED cutting interest rates is expected to provide the much-needed fuel to sustain the upward momentum in the equity markets.
The best forever stocks to buy now are companies depicting solid revenue and earnings growth with low debt levels poised to generate long-term shareholder value. Additionally, they boast a competitive edge in their respective industries by investing billions of dollars in research and development. In addition, the companies are increasingly spearheading industrial trends and technological advancements such as artificial intelligence.
Our Methodology
The best forever stocks offer stability and growth, making them ideal for long-term investors. We analyzed the iShares MSCI USA Quality Factor ETF, focusing on high-quality US stocks with strong competitive advantages. We ranked the top 10 based on market cap and hedge fund holdings.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Meta Platforms Inc (NASDAQ:META)
Number of Hedge Funds Holding Stakes as of Q2: 219
Market Cap as of September 18, 2024: $1.36 Trillion
Meta Platforms, Inc. (NASDAQ:META) is a communication services company that develops products to connect people and share among friends and family. It is best known for its flagship Facebook app, Instagram and WhatsApp. It also offers augmented and virtual reality products.
It is one of the best forever stocks to buy now as it controls 18% of the global digital advertising market. The company generates billions of dollars in advertising revenues through its flagship apps, Facebook and Instagram. Over the past five years, its revenue has increased at a compound annual growth rate of 18.3%, allowing it to generate significant shareholder value.
Meta Platforms, Inc. (NASDAQ:META)’s online advertising market supremacy resulted in its second-quarter revenues soaring by 22% year-on-year to $39.1 billion. Its total assets reached $230.2 billion, while its total liabilities stood at $73.5 billion.
Furthermore, Meta concluded the second quarter with a surplus of cash. Its cash, cash equivalents, and marketable securities amounted to $58.1 billion. Its second-quarter free cash flow (FCF) was $10.9 billion, which more than covered the $1.3 billion in dividends paid out, leaving ample funds for Meta to allocate towards its operations, reduce its debt, and buy back its own shares.
Meta Platforms, Inc. (NASDAQ:META) is completely dedicated to advancing its artificial intelligence (AI) initiatives as it looks to safeguard its future. It is investing significant resources to expand its network framework and processing capabilities, with a budget ranging from $37 billion to $40 billion for this fiscal year. Moreover, the substantial investments are expected to continue for an extended period.
While trading at a discount at a price-to-earnings multiple of 22, Meta Platforms stock yields 0.38% in dividends for income-focused investors.
In the second quarter, Meta Platforms, Inc. (NASDAQ:META) appeared in the portfolios of 219 hedge funds, with total stakes valued at $42.5 billion.
Rowan Street Capital mentioned Meta Platforms, Inc. (NASDAQ:META) in its second-quarter 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text).
Overall META ranks 2nd on our list of the best undervalued cyclical stocks to buy. While we acknowledge the potential of META as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.