Sacred Seven no longer so sacred, predictable

PEOPLE have a number of names for the small group of stocks that investors clung to and rode to big profits in the five years preceding 2022.

I call them The Sacred Seven. They are Alphabet Inc. (GOOGL), Amazon.com (AMZN), Apple Inc. (AAPL), Meta Platforms Inc. (META), Microsoft Corp. (MSFT), Netflix Inc. (NFLX) and Tesla Inc. (TSLA).

In 2022, all seven stocks were flattened. Here’s what each stock gained in 2017-2021 and what each stock has lost since I last wrote about them on Dec. 28, 2021.

Five-year gain through 2021 and its loss from Dec. 28, 2021 through Dec. 23, 2022

■ Alphabet 265.6 percent, -39.7 percent

■ Amazon.com 344.7 percent, -49.8 percent

■ Apple 551.6 percent, -39.67 percent

■ Meta Platforms 192.4 percent, -65.9 percent

■ Microsoft 482.1 percent, -29.6 percent

■ Netflix 386.6 percent, -51.7 percent

■ Tesla 2,372.7 percent, -66.1 percent

This column a year ago was titled “Why I Own Only Two of the Sacred Seven.” Those two were Alphabet and Apple.

The five stocks I suggested people avoid were down 46.8 percent from Dec. 28, 2021 through Dec. 23, 2022. To be sure, it was a down year, with the S&P 500 dropping 18.4 percent. But the Sacred Seven did much worse.

The two I liked were down 33.1 percent, better than most of their brethren but considerably worse than the S&P.

Here’s what I think of the Sacred Seven now.

Alphabet

Alphabet shares have sold for an average of 27 times the company’s earnings per share. Currently that multiple is below 18. Not bad, I’d say, for a company that has grown its earnings by an average of 15 percent a year for the past decade.

Amazon.com

The company lost momentum this year as people returned to brickand-mortar stores. I expect that it will pick up market share in the next few years because people like the convenience of online shopping.

Amazon sells for 78 times earnings.

Apple

I still like Apple for the same reasons I did a year ago. Its iphones and Mac computers have a loyal following. I like the company’s $48 billion in cash and marketable securities, and I love the 25 percent profit margin. At 22 times earnings, the stock is more expensive than I usually prefer, but not outlandish.

Meta Platforms

The stock sells for only 11 times recent earnings. I’m lukewarm.

What worries me is that I think Facebook’s past success stemmed in large part from sharing information about its customers with advertisers. I believe regulators will make it harder for Facebook and its brethren to do this. All in all, I think the stock will be a market performer or slightly better.

Microsoft

Microsoft can boast a ten-year annual earnings-growth rate of nearly 17 percent. Last year, however, it was below 4 percent. I think future growth will be way above 4 percent, and I think profitability will be excellent.

Alas, the stock is pricey. It sells for nearly nine times the company’s revenue. To me, that’s a dangerously high multiple.

Netflix

Netflix has had hits with many of its programs, such as “The Queen’s Gambit,” “Squid Game” and “Lupin.” But such shows cost a lot of money. The earnings growth rate for Netflix in the past decade has been nearly 54 percent. Last year? Less than 1 percent.

Tesla

Of all the Sacred Seven, Tesla had the best return in 2017-2021 and the worst in the past year. With competition increasing in both China and the U.S., I think it’s in for another tough year.