Tesla (TSLA) has work to do if it wants to remain a member of the tech elite.
Even though the company’s stock price soared on the surprising earnings report, resulting in the highest intraday share price in more than a decade, Wall Street is once again reevaluating the company’s inclusion in the Magnificent Seven. There is.
Members of this group, Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), and Tesla, will dominate the market in 2023, with potential It came back as a key. As the third quarter earnings season begins, we are playing the driver role. The group is expected to lead the way in the third quarter with an 18.1% year-over-year profit increase, and four stocks – Nvidia, Alphabet, Amazon, and Meta – are expected to be among the top 10 companies contributing to profit growth in the S&P 500. It is said that it has been done. to FactSet.
The debate over Tesla has begun again as concerns remain despite a recovery in profits. Tesla’s third-quarter profit rose 17%, a dramatic recovery from two consecutive quarters of profit declines.
This is not enough for Wall Street. Strategists say Wall Street remains at risk of falling behind other big tech companies because fundamentals are overvalued.
Jay Woods, chief global strategist at Freedom Capital Markets, compared Tesla to Bitcoin, suggesting the stock trades on “hopes and dreams” rather than fundamentals.
“Tesla has had its moment in the sun…to me, it’s more like Cisco or Intel from the dot-com bubble. Now they’re moving on to other things,” Woods warned on Yahoo Finance’s Morning Brief. did.
CEO Elon Musk often classifies Tesla as a technology company, but the company’s bets on AI and robotics are likely to take years to pay off. Meanwhile, Tesla must rely on improvements in its core auto business, which is in stark contrast to its Magnificent Seven peers.
“I’ve been in the technology industry since 1990, and I remember the Four Horsemen… not adding Cisco, Intel, Dell, Microsoft and auto stocks,” longtime technology investor Dan Morgan told me. told.
Tesla’s recent poor performance and high valuation have further worsened the company’s position among Mag7’s peers. The company’s forward P/E ratio of approximately 73x is significantly higher than other companies in the group.
As of Friday afternoon, just over 40% of analysts covering Tesla rated the stock a “buy,” according to Bloomberg data, making Tesla the least favored Magnificent among analysts. It became a Cent Seven stock.
When it comes to Tesla’s successor, Netflix has emerged as a likely candidate.
Ayako Yoshioka of Wealth Enhancement Group pointed out to me that Netflix “makes the most sense” as the original FAANG member’s stock recently hit an all-time high, supported by strong earnings and solid guidance. .
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Since the start of the year, the stock has soared 55%, ranking second only to the Magnificent Seven’s Nvidia and Meta.
Portfolio Wealth Advisors’ Jesús Alvarado Martinez said being a member of Mag Seven is all about being a “cash flow machine” and Netflix “fits the bill.”
“Netflix’s free cash flow has been relentless…great revenue, great free cash flow, great subscriber numbers,” Alvarado added.
The streamer’s free cash flow has steadily increased since the pandemic, rising to $2.19 billion in the third quarter from $1.89 billion a year earlier. Free cash flow totaled $6.93 billion in 2023, compared to $1.62 billion in 2022.
Bank of America analyst Jessica Lief Ehrlich sees Netflix’s free cash flow growth as a “catalyst” for the stock, with free cash flow expected to rise to $8.9 billion in 2025 and $8.9 billion in 2026. It is expected to increase to $11.16 billion in 2020.
As of Friday, analysts were overwhelmingly bullish on Netflix. 87% of analysts covering the stock rate it a “buy,” but only 3% recommend selling the stock.
Tesla’s fate in the ‘Magnificent Seven’ remains uncertain, but Netflix’s recent surge reminds investors why the company was once popular and now considering a change in the dominant group This further supports the argument that it may be the right time to do so.
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Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Have a tip about a deal, merger, activist situation, or more? Email seanasmith@yahooinc.com.
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