We recently compiled a list of the 7 Best Big Company 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 big company stocks.
Mega-cap stocks—major technology companies to be precise—continued to drive a disproportionate share of the total US stock market returns. Market experts believe that from 2023 beginning to May 2024 end, only a handful of the biggest and most well-established technology companies drove ~60% of the S&P 500’s 40%+ gain.
FactSet reported that, for 2Q 2024 (with 93% of S&P 500 companies publishing actual results), ~79% of the S&P 500 companies reported positive EPS surprises. On the other hand, ~60% of S&P 500 companies reported positive revenue surprises. In 2Q 2024, semiconductor companies’ stocks were the critical drivers for the S&P 500 Index. The AI themes supported other sectors, like utilities, seeking support from higher electricity demand for AI data centers.
3Q 2024 Earnings Season – A Preview
Wall Street experts believe that estimates for 3Q 2024 have seen a decline and the magnitude of estimate cuts seems to be significantly bigger than compared to the comparable periods of the first 2 quarters of 2024. Market participants opine that total S&P 500 earnings should see an increase of 3.9% from the same period of last year on 4.7% revenue growth. These estimates have come down since the beginning of the period, as the current 3.9% growth had fallen from 6.9% at the beginning of July.
The decline in estimates stems from the risks associated with economic downside, slower disinflation, expectations for higher-for-longer rates, and increased geopolitical risks. Apart from these risks, the uncertainty around the US Presidential elections remains the most important factor responsible for the decline in estimates.
Wall Street analysts believe that uncertainty surrounding the US presidential election is expected to rise as the November vote draws closer. This can act as an additional headwind in the environment already demonstrating signs of losing momentum.
Reuters reported that populism, polarization, and an expected tight race can result in a surge in the economic policy uncertainty index (EPU). This is a news-headline-based index, which was created by economics professors Steven J. Davis, Scott R. Baker, and Nick Bloom. The rise in EPU takes place when an uncertain outlook about government policy prompts consumers to delay their spending and forces businesses to put a halt on investment and hiring.
Brandywine Global Investment Management (A Franklin Templeton Company), an investment management firm, believes that this might be happening in the current environment. The firm noted that the University of Michigan’s current economic conditions index remains below the expectations index. Notably, this is a rare occurrence, suggesting that consumers are anxious.
Amidst Worries, Investors Should Stick to Big Company Stocks
Analysts at Brandywine Global believe that this year’s election cycle, whether warranted or not, continues to impact the US consumer, which in turn, is impacting the corporate sector.
In the 2020 follow-up working paper, Davis (the co-founder of the EPU index) and his colleagues revealed that the EPU index tends to increase by ~18% in the month of November during a Presidential election. When elections come close, and there is a winning margin of less than 5%, and polarized, the EPU index can jump by ~28% in election month.
Political uncertainty can be a more powerful factor in asset prices, with investors focusing on the US Presidential elections. A JPMorgan survey revealed that investors continue to see political risk in the US and abroad as the top destabilizing metric for equities.
AI fever coupled with strong earnings has supported broader equities in 1H 2024, and gains have been concentrated in technology and growth stocks. Analysts opine that some investors are still looking for areas of the market that have underperformed, and they expect that the recent rally in tech might spread into other sectors as well. Most investors welcomed the signs of a slowdown in inflation and moderation in growth. As a result, the US Fed has hinted to cut key interest rates. With uncertainties looming, market experts believe that investors should stick to the big stocks, which have a healthy track record of delivering strong gains.
Our methodology
To select the 7 Best Big Company Stocks to Buy Now, we used the Yahoo Finance and Finviz stock screeners to filter stocks with biggest market caps from different industries. Next, we narrowed our list by selecting the big and well-established companies that were the most popular among elite hedge funds. Finally, the stocks were ranked in the ascending order of their hedge fund sentiment.
Why are we interested in 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).
A team of developers working in unison to create the company’s messaging application.
Meta Platforms, Inc. (NASDAQ:META)
Number of hedge fund holders: 219
Meta Platforms, Inc. (NASDAQ:META) operates as a social technology company. It builds applications and technologies that help people connect, locate communities, and grow businesses.
Considering the company’s network effects concerning its massive user base, and intangible assets consisting of a massive collection of data users have shared on the company’s sites and apps, Meta Platforms, Inc. (NASDAQ:META) appears to be well-placed for strong and stable growth over the medium term. Considering the company’s capability to profitably monetize its network through advertising, the company should comfortably generate excess returns on capital for the foreseeable future.
Meta Platforms, Inc. (NASDAQ:META)’s ad revenue per user continues to grow. This demonstrates that advertisers are seeing value in working with the firm. The company has strategically accumulated data about everyone via Facebook and/or Instagram accounts, which are benefiting the advertisers in some form or the other. In 2Q 2024, the company’s average price per ad went up by 10% YoY. The company continues to incorporate AI technology into its various offerings and focuses on launching VR products, which should enhance user engagement and drive further growth in advertising revenue.
In 2Q 2024, Meta Platforms, Inc. (NASDAQ:META)’s advertising revenue increased $6.83 billion, or 22% on the YoY basis because of growth in ad impressions delivered and average price per ad. The growth in ad impressions delivered was mainly because of an increase in users and their engagement with the company’s products. For 3Q 2024, it expects total revenue in the range of $38.5 billion – $41 billion.
Wolfe Research initiated coverage on shares of Meta Platforms, Inc. (NASDAQ:META) on 16th July. They issued an “Outperform” rating and gave the price target of $620.00. Mar Vista Investment Partners, LLC, an investment management company, released second quarter 2024 investor letter. Here is what the fund said:
“During the quarter, we established new investments in Broadcom and Meta Platforms, Inc. (NASDAQ:META). We previously divested from Meta during a period of stagnant advertising growth and the company’s initial, significant investment in the metaverse project. At that time, investors appeared complacent to the risks associated to an increasingly competitive landscape, and the Street’s robust financial expectations as the company transitioned towards monetizing short-format video (Reels). The subsequent decline in Meta’s stock price during 2022 reflected these concerns.
Since then, Meta has demonstrably shifted its strategic focus. The company has prioritized operational efficiency, implemented strategies to monetize Reels effectively, and initiated a robust artificial intelligence (AI) development program. We believe the focus on AI represents a more prudent capital allocation strategy compared to the earlier metaverse initiative. Meta AI holds significant potential to unlock substantial monetization opportunities and enhance user engagement, while maintaining tight controls on operating costs…” (Click here to read the full text)
Overall META ranks 2nd on our list of the best big company stocks to buy. While we acknowledge the potential of META as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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