We recently compiled a list of the 10 Best Beginner 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 beginner stocks.
While investing in the stock market carries risk, the US stock market is generally considered a safe place to invest. It has a long history of growth and has consistently recovered from downturns, including major recessions and financial crises.
Over the last four to five years, the market has been hit by several unexpected downturns, due to a global pandemic and the Russia-Ukraine war, among other things, that crippled the global economy. However, the US broader market recovered swiftly and has been performing well since 2023. It is nearly 19% up year-to-date, as of August 23.
Nevertheless, it is still a complicated place for beginners and they should consider investing in shares of well-established companies with a history of stable performance and reliability. These stocks typically belong to large, financially sound companies that operate in diverse industries, such as technology, consumer goods, and healthcare.
Additionally, beginners can also look into index funds or exchange-traded funds (ETFs) that track major market indices like the S&P 500. These options offer diversification, which reduces the risk associated with investing in individual stocks while still providing exposure to the broader market’s potential gains. Investing in such well-established and diversified assets can help beginners build confidence and knowledge in the stock market. For such ETFs, you can check out our article on the best large-cap growth ETFs.
Opportunities and Caution for New Investors Due to Consumer Behaviour
On August 16, Melissa Minkow, director of retail strategy at CI&T, discussed the latest trends in U.S. consumer spending in a CNBC interview. Despite concerns about a potential recession, Minkow believes we might have avoided one. She pointed out that although consumers may feel like they are in a recession, their spending habits show otherwise. They continue to spend, especially when presented with discounts. Retailers have adapted by offering more targeted promotions this year, which has helped maintain consumer spending despite previous challenges like the pandemic and supply chain issues.
Minkow also noted that the effectiveness of promotions can vary across sectors. For example, quick-service restaurants like McDonald’s and Starbucks haven’t seen the same benefits from discounts as other retailers, partly because consumers may opt for more cost-effective alternatives like home-cooked meals. Additionally, brands that are already positioned as discount options might not see as much impact from promotions. However, retailers who offer significant discounts on desirable items can attract cost-conscious shoppers and increase sales volume, potentially offsetting the impact on profit margins.
For beginner investors in the stock market, the current retail sector dynamics offer both opportunities and challenges. The resilience of consumer spending, even in the face of economic uncertainty, suggests that certain sectors and companies could continue to perform well, especially those that effectively use promotions to drive sales. Retailers offering targeted discounts on popular items may attract more customers, boosting their sales volumes, which could lead to positive stock performance.
However, beginner investors should also be cautious. Not all companies benefit equally from promotions, as seen with the restaurant and food segment, where discounts haven’t significantly improved earnings. This highlights the importance of understanding the specific business models and market positioning of companies before investing.
The Market is Healthy but Caution is Advised
The U.S. stocks have seen a significant surge over the last few quarters, which are mainly driven by strong economic data and optimism about a potential soft landing for the U.S. economy. However, experts remain cautious as we discussed in our best defensive stocks article.
In the article, we discussed the J.P. Morgan report that noted the market’s heavy reliance on large, high-quality tech and AI companies, and it warned that maintaining this momentum could be challenging due to high valuations and potential market volatility. Here is an excerpt from the article:
“According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.”
Our Methodology
For this article, we used stock screeners to identify large to mega-cap stocks with a revenue compound annual growth rate of at least 5% over the last 10 years. The companies we chose are well-known, well-established, fundamentally strong, and some also pay regular dividends. We listed the companies in ascending order of their hedge fund sentiment as of the second quarter of 2024.
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
10-year Revenue CAGR: 31.07%
Meta Platforms, Inc. (NASDAQ:META), previously known as Facebook, Inc., is a prominent American multinational technology company. It operates through two primary business divisions, Family of Apps and Reality Labs.
The Family of Apps segment features platforms like Facebook, Instagram, Messenger, and WhatsApp, generating revenue mainly through advertising sales. This division enables users to connect, share content, and interact with various communities while offering secure messaging tools for personal and group communications.
On the other hand, the Reality Labs segment focuses on augmented and virtual reality, encompassing consumer hardware, software, and content. This includes products such as the Oculus VR headsets and Facebook Reality Labs, which spearheads the company’s AR/VR research and development efforts.
Additionally, the company has been expanding the offerings of Metaverse, utilizing artificial intelligence and immersive technologies to craft unique experiences. The company is actively promoting several AI-driven products, including Meta AI, a virtual assistant powered by AI, and smart devices like Meta Smart Glasses and Meta Quest, which use AI to deliver advanced computational capabilities directly to users.
Meta (NASDAQ:META) has positioned itself as a dominant force in the digital landscape, owing to its vast user base and advanced technological infrastructure. With 3.27 billion daily active users across Facebook, Instagram, WhatsApp, and Threads, it holds an impressive amount of first-party data. This extensive user engagement provides a critical advantage in developing and refining AI models, which is essential for maintaining a competitive edge.
The company’s investment in technology is substantial. It has acquired nearly 600,000 of Nvidia’s H100 GPUs, a top-tier component for AI computing, and is also developing its own custom chip to further improve its capabilities.
On top of this, the company has introduced its own AI models, such as Llama, which is integrated into its apps and made available to external developers. This positions it as a significant player in the AI ecosystem, which allows control over its development and application across its platforms.
The impact of these advancements is evident in Meta’s (NASDAQ:META) financial performance. In the second quarter, the company saw a 7% increase in daily active users while achieving a 58% boost in operating income. The company’s dominance in digital advertising is reinforced by its AI-driven tools that enhance ad effectiveness by matching ads more precisely with target audiences. This has contributed to a 22% year-over-year revenue growth and a remarkable 73% increase in earnings per share. The company’s revenue surge is supported by a 10% increase in both the number of ads served and the cost per ad.
In addition to advertising, Meta (NASDAQ:META) is expanding its footprint in the video segment. Engagement with Reels is growing, and the new unified video player for Facebook has shown promising results. The company’s efforts to enhance its text-based platforms are also showing potential for further user base expansion and revenue growth.
WhatsApp remains the world’s leading messenger app with over 2 billion users, including more than 100 million monthly active users in the United States. Threads is rapidly gaining traction, with nearly 200 million monthly active users, and could become a significant revenue contributor if the company decides to monetize it.
Meta (NASDAQ:META) combines its extensive user base, cutting-edge AI technology, and advanced advertising capabilities to drive growth and drive its market position. As it continues to innovate and expand, the company appears well-positioned to capitalize on its strengths and achieve further success.
In Q2, 219 hedge funds had investments in Meta (NASDAQ:META), with positions worth $42.54 billion. GQG Partners is the top investor in the company as of the second quarter and has a stake worth $5.4 billion.
Fred Alger Management stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q1 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) operates the world’s largest social network, with over 3 billion monthly active users across its platform. The company generates revenue predominantly from advertising. which accounts for over 95% of its total revenue, evenly split between North America and international markets. During the quarter, shares contributed to performance following the release of strong fiscal fourth quarter operating results, with revenues and earnings surpassing analyst estimates. The better-than- expected revenues were attributed to strong advertiser demand and Al-driven ad improvements. Moreover, the company materially raised its fiscal first quarter sales and earnings guidance above analysts’ estimates, buoyed by continued strong advertiser demand trends and enhancements to Reels. Advantage+. Click-to-message, and Shop Ads. Further, management noted that ongoing investment in Al is enhancing user engagement and advertiser returns through improved targeting and measurement. Separately, Meta authorized a new share repurchase plan representing approximately 5% of its market capitalization and announced the initiation of its first dividend, implying an approximate 0.4% yield.”
Overall META ranks 2nd on our list of the best beginner stocks to buy. 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 an 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.
