Day: September 19, 2024

The “Magnificent Seven” are a group of the world’s most popular and promising growth stocks. Investing in these big-name tech stocks has been a great way to earn some significant returns in recent years. But things can change quickly in the tech world, and just because some stocks have done well in recent years doesn’t mean that they will be solid stocks to hang on to in the long run.

Three Magnificent Seven stocks that I don’t think will look so magnificent in five years are Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), and Tesla (NASDAQ: TSLA). Here’s why these particular stocks could struggle in the years ahead.

1. Alphabet

Alphabet used to be a stock I was bullish about. The business looked dominant with a top video streaming website (YouTube) and a top search engine (Google).

Nowadays, I’m not as optimistic. As the ads get longer and longer on YouTube, the risk is that it might give users an incentive to switch to a streaming service such as Netflix instead, where there’s a broad range of top content to choose from to help justify its price tag without annoying ads (depending on the subscription tier).

But the biggest risk for Alphabet undoubtedly comes in its search business. Regulators have already ruled that Google is a monopoly, and the consequences of that are still unknown, but they’ll likely hurt its growth prospects. And with more artificial intelligence (AI)-powered chatbots answering questions and reducing the need to go to Google, that’s another headwind for its sales growth.

The stock might look cheap, trading at just 23 times its trailing earnings, and its revenue is still strong, growing by 14% year over year in the latest reported quarter, but investors shouldn’t gloss over the long-term risks that Alphabet faces. There could be some daunting new challenges and competition that could stunt its growth and reduce its earnings power, which is why I would avoid the stock right now.

2. Meta Platforms

Another business that’s doing well right now but could struggle in the future is Meta Platforms. Business has been booming for the company: Revenue jumped 22% year over year in the June quarter, totaling $39.1 billion. Meta management says its AI assistant will be “the most used AI assistant in the world by the end of the year.”

The present looks solid, but the future might not be as promising. Like Alphabet, Meta faces challenges from regulators. Concerns relating to the company’s social media platforms and their alleged adverse mental health effects on users might lead to changes in Meta’s operations that could impact the bottom line. Last year, 42 state attorneys general sued Meta, claiming that Facebook and Instagram were too addictive for young kids. Elsewhere, greater restrictions are being called for on the data Meta collects and how it collects it. The social media platforms it operates could become less valuable for advertisers if the restrictions are added.

Story continues

Then there is the continued massive spending by Meta on its Reality Labs segment and a metaverse that is showing little sign of ever providing the return on investment needed to justify it.

At 27 times earnings, Meta’s stock doesn’t look too expensive, but that could change if its growth slows down while the spending remains high. This is a tech stock I would avoid — it could have a long way to fall in the next few years.

3. Tesla

The most expensive stock on this list (based on valuation) is Tesla; investors are paying more than 60 times earnings to buy shares in it. But that isn’t uncommon for the electric vehicle (EV) maker. Investors are accustomed to paying high multiples for the stock. This year, however, hasn’t been a great one — the stock is down around 7%.

Investors are concerned about the company’s thinning margins due to a rise in competition and weak consumer demand. Neither one of those issues might improve anytime soon. A possible recession could hurt demand in the short term, and while that might be temporary, growing competition from Chinese EV makers could lead to Tesla needing to further reduce its prices, which would only exacerbate worries about its bottom line.

Tesla hopes that a successful launch of its robotaxi program could be a catalyst, but that could prove to be an underwhelming development for the company given the potential for regulatory issues and other obstacles.

As challenging as conditions are for Tesla right now, they could get worse for the stock over the next five years.

Should you invest $1,000 in Alphabet right now?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $708,348!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Netflix, and Tesla. The Motley Fool has a disclosure policy.

Prediction: These 3 Stocks Won’t Be Magnificent Buys in 5 Years was originally published by The Motley Fool

Bitcoin (CRYPTO: BTC) can be a volatile asset. But that hasn’t stopped some analysts, experts, and billionaires from turning extremely bullish on the world’s largest cryptocurrency and buying huge amounts of it. After recent purchases the other day, billionaire Michael Saylor’s company MicroStrategy Incorporated owned 1.17% of all Bitcoin outstanding. Other billionaires, including Elon Musk and the Winklevoss twins, have also purchased huge amounts of Bitcoin.

These billionaires seem to be in line with one Wall Street analyst who recently issued a research note suggesting the price of Bitcoin could jump 116% from current levels and hit $125,000 by year’s end. Let’s take a look.

Impact of the election

In a recent report by the investment bank Standard Chartered, a team of analysts said that Bitcoin is poised to hit a new high by the end of the year, which is only a few months away. The bank considered several economic and political factors in reaching this conclusion.

First, Standard Chartered looked at how the presidential election might affect Bitcoin, ultimately determining that the outcome is less important than people think.

“Progress on relaxing regulations — particularly the repeal of SAB 121, which imposes stringent accounting rules on banks’ digital asset holdings — will continue in 2025 no matter who is in the White House,” Geoff Kendrick, global head of digital assets research at Standard Chartered, wrote in his note. Still, Kendrick thinks crypto deregulation will move faster if former President Donald Trump wins rather Vice President Kamala Harris, although he still thinks it would eventually happen under a Harris presidency, too.

Kendrick believes that a Harris victory would likely lead to an initial decrease in the price of Bitcoin but that it wouldn’t last long due to other external factors. Kendrick assigned Bitcoin a $125,000 price target if Trump wins and a $75,000 price target if Harris wins.

The economic impact

Aside from the election, Kendrick also thinks Bitcoin will start “building positive momentum” as the yield curve un-inverts after more than two years and starts to steepen, with long-term yields exceeding short-term yields.

That certainly makes sense from a historical perspective because Bitcoin has performed well in falling-interest-rate environments, which tend to increase investment in riskier assets because Treasury bills no longer yield as much. Additionally, lower interest rates typically result in a weaker U.S. dollar, creating another environment in which Bitcoin has performed well because it is viewed as an alternative to traditional currencies like the dollar.

Story continues

Bitcoin Price data by YCharts

As you can see above, Bitcoin has performed very well in a lower-interest-rate environment. Recently, it’s also been resilient in the higher-rate environment.

Bitcoin and price targets

Price targets are difficult to predict for even the oldest blue-chip stocks, but they are especially difficult for an asset like Bitcoin, which can be more volatile than a traditional stock. We are also still in the process of learning more about Bitcoin and other cryptocurrencies.

Now, the billionaires who own Bitcoin have predicted some pretty outlandish price targets. For instance, Saylor thinks the price of Bitcoin could hit $13 million by 2045. Maybe, but it seems like an aggressive call. The good news about price targets from Wall Street is that they are usually placed 12 to 18 months out and are therefore a little more realistic.

I couldn’t tell you whether Bitcoin will hit $75,000 or $125,000 by year’s end. But I do think Bitcoin has long-term upside and can be a part of your portfolio.

Should you invest $1,000 in Bitcoin right now?

Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $708,348!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Bram Berkowitz has a position in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Standard Chartered Plc. The Motley Fool has a disclosure policy.

Billionaires Are Buying This Cryptocurrency That Could Soar 116% by Year’s End, According to This Analyst was originally published by The Motley Fool

The Federal Reserve gave investors exactly what they said they wanted on Wednesday, slashing interest rates by an outsized 50 basis points—but it still wasn’t enough. After a brief jump following the initial announcement, stocks went through a period of highly volatile trading before all three major U.S. market indices ended Wednesday lower.

The Dow Jones Industrial Average sank 0.25%, while the S&P 500 and the tech-heavy Nasdaq Composite sank 0.29%, and 0.31%, respectively.

Markets were selling off even as Fed Chair Jerome Powell told reporters at his post-FOMC meeting press conference that the 50 basis point rate cut was meant to demonstrate officials’ “confidence” that current labor market strength can continue with an “appropriate recalibration” of monetary policy.

While no one can know the definitive reason behind stocks’ negative reaction to what should have been a market-juicing mega rate cut, Rick Rieder, BlackRock’s CIO of Global Fixed Income and Head of the BlackRock Global Allocation Investment Team, touched on one theory.

Looking at the Fed’s Summary of Economic Projections, Rieder noted that Fed officials penciled two more 25 basis point rate cuts this year, and another 100 basis points of cuts in 2025. That’s a lot, but it’s not what investors were pricing in prior to the meeting.

“The market has priced in a rate path that looks more like what an impending recession would require…versus the recalibration of rates to a less restrictive, or neutral, policy evolution, which is what we think this cycle likely represents,” he told Fortune via email.

Essentially, even though markets got their juicy 50 basis point rate cut in the near-term, the longer-term outlook for interest rates from Fed officials wasn’t as appealing as anticipated.

Thomas Simons, a senior economist at the investment bank Jefferies, echoed this outlook in a note to clients Wednesday. “​​The long-run rate continues to be revised up, implying a higher terminal rate. The 50 [basis point] cut today was a dovish surprise, but we do not see signs that more big cuts are coming,” he said.

The economy is ‘fine’ and ‘we’re not behind’

There’s another potential reason underlying stocks’ negative reaction to the Fed’s Wednesday decision. Some see Fed officials’ outsized rate cut as a sign that they’ve recognized they should have begun cutting rates months ago.

Powell addressed these concerns in his press conference Wednesday. “We don’t think we’re behind….You can take this as a sign of our commitment not to get behind,” he told reporters.

But more than a few experts just aren’t buying it. “This is a Fed that believes they are behind the curve,” Robert Minter, director of ETF Investment Strategy at abrdn, told Fortune via email.

Story continues

The skepticism isn’t without reason. Even Powell himself admitted that if Fed officials would have seen July’s weak jobs report prior to that month’s FOMC meeting, they likely would have cut rates then. “If we’d have gotten the July [jobs] report before the meeting, would we have cut? We might well have,” he said. “We didn’t make that decision. But you know we might well have.”

Robert Frick, corporate economist at Navy Federal Credit Union, even argued that the Fed may be concerned that labor market data isn’t as dependable as they imagined after revisions to previous jobs data showed the U.S. economy employed 818,000 fewer people between March 2023 and March 2024 than originally reported.

“The half point cut is an admission the Fed is behind the curve, but not a sign of panic,” Frick told Fortune via email. “The Fed has been ‘data driven,’ but doubts about that data have proven on point as it didn’t paint an accurate picture of the labor market.”

“With inflation all but whipped, the Fed needs to quickly improve conditions for hiring and spur investment to create more jobs,” he added.

Once again, however, Powell attempted to address concerns about labor market and economic weakness during his press conference.

“The U.S. economy is in good shape,” he said. “It’s growing at a solid pace. Inflation is down. The labor market is in a strong place. We want to keep it there. That’s what we’re doing.”

“I don’t see anything in the economy right now that suggests the likelihood of a recession—sorry, of a downturn—is elevated,” he added.

Some experts celebrated Powell’s decision to opt for a 50 basis point rate cut as well. “For the first time since the Pandemic, this Fed made an aggressive action to be ahead of the curve by cutting rates to ensure the economy does not slip into recession,” Jay Hatfield, CEO of Infrastructure Capital Advisors, told Fortune via email.

It was perhaps this difference of opinion among various experts that led to the volatile trading seen on Wednesday. Citi Wealth’s interim chief investment officer Steven Wieting warned this could happen prior to the Fed’s announcement, noting that volatility is common as investors’ digest Fed decisions and their myriad of potential implications.

There was also one more, potentially market suppressing, comment that Powell offered on Wednesday.

When it comes to the future outlook for the neutral rate—the level where monetary policy becomes neither stimulative or accommodative—Powell said that he believes “we’re not going back” to the near-zero rates that became common prior to the pandemic.

“It feels to me that the neutral rate is probably significantly higher than it was back then,” he said.

With many investors looking for evidence of where interest rates might land, not just in the near-term but years from now, this comment could have exacerbated stocks’ sell-off.

This story was originally featured on Fortune.com