Every era has its trendy group of hot stocks that investors glom onto.
Currently, the new group of mega-cap stock catching the market’s fancy is the Magnificent 7. This group of stocks is pushing the S&P 500 into bull market territory. Without their remarkable runs higher this year, the broad market index would be flat.
A number of these companies are holdovers from previous iterations of must-own stocks. They include Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon, Apple, Meta Platforms (NASDAQ:META), Microsoft, Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA).
It shows their enduring quality and the reason investors include them in their portfolios. As leading businesses within their respective industries, they possess well-defined competitive advantages.
Based on analyst price targets, here are the two of the best Magnificent 7 stocks to buy and one they say to sell.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is the king of e-commerce and among Wall Street’s best stock to buy. Compared to its consensus price target of $160 per share, Amazon has an additional 18% gain in its future.
With AMZN being the e-commerce giant, it’s the first place consumers search when purchasing a product. Amazon has a 47.9% share of the e-commerce space, according to PYMTS, the global data leader. Walmart (NYSE:WMT) is a distant second with just 6.7%.
Yet the real moneymaker for the retailer is its cloud-based services segment. Amazon Web Services (AWS) sales jumped 12% last quarter to $22.1 billion while generating $5.4 billion in operating income. That is 70% of total operating profits. The segment routinely generates 50% or more of Amazon’s operating income.
Many don’t realize is Amazon has used the power of AWS to also build a massive advertising platform. It is the third largest behind Google and Meta’s Facebook. In Q2 alone, Amazon generated $10.7 billion in ad service revenue.
Run space for this magnificent e-commerce giant is wide open.
Microsoft (MSFT)
Considering Microsoft (NASDAQ:MSFT) is already up 35% in 2023, investors might be surprised it’s another highly valued Magnificent 7 stock to buy.
The fiscal fourth quarter capped a monstrous year for Microsoft. Revenue grew 11% in currency adjusted results to $212 billion while operating profits surged 14% to $89.7 billion.
While Amazon’s cloud services is robust, people may forget that Microsoft is a major player itself. Its Azure platform is the second largest cloud services provider with a 22% share of the market, within striking distance of AWS at 33%. It is also well ahead of Google’s standing at 10%.
Naturally, the PC business is ebbing, and tech gadget popularity has waned in the post-pandemic era. Yet Microsoft is still a colossus in gaming and hasn’t given up on its acquisition of Activision Blizzard (NASDAQ:ATVI). It just agreed to sell the online streaming rights to Activision’s IP portfolio to the U.K.’s Ubisoft Entertainment (OTCMKTS:UBSFY).
Microsoft’s stock isn’t cheap, but it arguably deserves the premium assigned by the market. It is a solid company and worth a closer look by investors.
Tesla (TSLA)
Not surprisingly, Tesla (NASDAQ:TSLA) is the stock looked upon least favorably by Wall Street. It’s technically not a sell, but rather a hold. The consensus outlook on Tesla stock is for a 1.3% drop. Not really tragic, considering it’s up 94% year to date.
That suggests they believe the electric carmaker is fairly priced at current levels. Also, discounting is shrinking profit margins and the carmaker is ramping up mass layoffs.Certainly Tesla has a history of defying expectations. Even after losing a quarter of its value in the last month, the stock is still richly valued. It goes for 67 times trailing earnings and 50 times next year’s estimates.
As often as analysts get it wrong about stocks, it looks like they have it right this time with Tesla.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
