We recently compiled a list of 10 High Growth NASDAQ Stocks That Are Profitable in 2024. In this article, we will look at where Meta Platforms, Inc. (NASDAQ:META) ranks among the high-growth NASDAQ stocks that are profitable.
Will the Bull Market Continue as We Enter the Earnings Season?
Malcolm Ethridge, Capital Area Planning Group managing partner, joined CNBC to talk about where the market could go and his sentiment regarding the AI and overall tech sector. While many analysts believe that it will be the small caps that will lead the growth with interest rates easing and the economy slowing down. We recently covered the 8 Most Undervalued Penny Stocks To Buy According To Analysts, where we talked about how Tom Lee, co-founder of Fundstrat Global Advisors likes the small cap in the current market environment. Here’s a piece from the article:
“To talk about what the stock market looks like today and in the near future. Tom Lee, co-founder of Fundstrat Global Advisors joined CNBC in a recent interview. He has been one of the strong proponents and supporters of small-cap stocks. Lee says that we are in a volatile environment currently, due to a few reasons, one being the elections in less than 30 days, the second being the Middle Eastern crisis which is scaring investors, and lastly the port strike that has the potential to cripple the economy. However, he still expressed his optimism that the year-end has a lot of tailwinds and investors shouldn’t be afraid to buy the dip. Moreover, Lee also highlighted that these current events are all short-term headwinds in a buying cycle and are expected to die down quickly.
Lee thinks that bottoms are tough and processed, and small caps are in the process of what could be a multi-year bottom. Therefore the conviction is that some people might want to buy the big names on NASDAQ and the AI market, however, with small caps trading at lower multiples of P/E less than 10, the risk and reward lie in small caps. Lee further mentioned that interest rate cuts and better earnings growth make the path for small-cap growth more visible.
Tom Lee has also reaffirmed his belief that the S&P 500 could close above 5,700 by year-end, supported by strong economic fundamentals and a dovish Federal Reserve beginning to cut interest rates. He noted that significant cash reserves are available for investment, which could drive stock prices higher in the next three to twelve months.”
Ethridge thinks otherwise, he believes that mega-cap stocks will continue to lead market growth, although not at the same pace as in recent years but still at a steady pace. He attributes this to the ongoing influence of artificial intelligence (AI) on various sectors, including real estate and manufacturing, which are becoming increasingly vital due to rising demands on infrastructure.
Moreover, while explaining why the mega caps will lead the growth, Ethridge pointed out that for the big tech stocks, Fed rate cuts were not necessary as they had significant cash on their balance sheets to reinvest into newer AI ventures. We have already seen Magnificent Seven invest heavily in AI despite the high rate of borrowing thereby leading the bull market in difficult times.
The rate cuts have now made it easy for other companies that didn’t have enough cash to borrow and invest in technology. However, he also pointed out that the pace of rate cuts might slow down moving forward, thereby making it hard for small caps to keep up the technology investment race. Ethridge suggests that investors may need to adjust their expectations regarding future Federal Reserve rate cuts.
Moreover, we are also entering earnings season, will the earnings derail the momentum or continue to boost the market? Drew Pettit, Citi Research Director of US Equity Strategy joined CNBC in another interview. He thinks that we are in for a decent quarter, although we are in an expensive market.
While talking about how various sectors will perform, Pettit mentioned that software has the highest bar within tech, meaning its growth expectations are high, yet many software companies are not monetizing effectively. This creates volatility in stock performance. As earnings reports come in, Pettit suggests investors should focus on consumer behavior and credit conditions, particularly in the banking sector, which is expected to perform well this quarter. He also encouraged investors to look beyond the recent quarter earnings into 2025 and 2026, while choosing companies to invest in.
Our Methodology
To curate the list of 10 high-growth NASDAQ stocks that are profitable in 2024 we used the Finviz stock screener, Seeking Alpha, and Yahoo Finance as our sources. Using the stock screener, we got an initial list of major NASDAQ stocks sorted by their market capitalization. Next, we sourced the 5-year net income growth and revenue growth rates for these stocks from Seeking Alpha and the GAAP trailing twelve-month net income from Yahoo Finance. We only selected stocks that had 5-year net income and revenue growth of more than 15%. Lastly, we ranked the stocks by the number of hedge fund holders in Q2 2024 from Insider Monkey’s database. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? 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).
Meta Platforms, Inc. (NASDAQ:META)
5-Year Net Income Growth: 24.69%
5-Year Revenue Growth: 19.06%
TTM Net Income: $51.43 Billion
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) is another high-growth NASDAQ stock that is profitable in 2024. It is the creator and manager of famous social media platforms, Facebook, Instagram, and WhatsApp, and runs everything related to the social media that we have today.
The strategic edge of the company comes from its huge user base, which makes it impossible for any competitor to challenge its growth. While any tech company can create a social media platform, what they can’t do is drive active users like Meta Platforms, Inc. (NASDAQ:META) does. During the fiscal second quarter of 2024, the company reported more than 3.3 billion active daily users on its social media apps including Facebook, WhatsApp, and others.
Another quality that the company has developed over time is its high rate of Return on Invested Capital (ROIC). We recently saw investor confidence shattering due to a lack of return on AI investment by tech giants. But not with Meta Platforms, Inc. (NASDAQ:META), the company currently has a ROIC of 31%, which is more than 3 times the average of the S&P 500.
If we look at the past 5 years performance we see that the company has grown its bottom line by 25% and top line by 19%. During the second quarter of 2024, it brought in $10.9 billion in free cash flow indicating strong and profitable fundamentals.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text)
Overall META ranks 2nd on our list of the high-growth NASDAQ stocks that are profitable. While we acknowledge the potential of META as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock 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 was originally published on Insider Monkey.
