We recently compiled a list of the 8 Most Profitable Blue Chip Stocks to Invest In. In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against the other profitable blue chip stocks.
The September inflation report came in hotter than expected and showed that it remains sticky. Headline inflation rose by 2.4%, slightly above the anticipated 2.3%, and down from 2.5% in August. Month-over-month, CPI increased by 0.2%, exceeding the forecast of 0.1%.
Core inflation, excluding food and energy, also came in higher than expected at 3.3%, compared to the anticipated 3.2%, marking a slight increase from August. On a monthly basis, core CPI rose by 0.3%, which matched August’s figures but was above expectations of 0.2%.
Following the report, the market is expecting a 25 basis points rate cut to no rate cuts in the upcoming Fed meeting. According to the CME FedWatch tool, 79.9% of interest rate traders expect the rate cuts to be at 450-475 bps at the coming Fed meeting while 20.1% expect the rate cut to stay the same. At the beginning of the month, 32.1% expected a 50 bps rate cut, while 67.9% anticipated a 25 bps cut.
Understanding Inflation Trends and Federal Reserve Strategy
Despite the sticky inflation, IBM’s vice chair, Gary Cohn believes that the Fed will cut rates by 100 bps this year. In an interview at CNBC’s ‘Money Movers’, he suggested that the U.S. is experiencing what a soft landing looks like, with inflation decreasing but not steadily. He indicated that reaching the Fed’s 2% target will be challenging, as inflation rates are likely to fluctuate around this level.
Cohn noted that for the first time in nearly two decades, the Fed is balancing both sides of its dual mandate, employment, and price stability, after focusing primarily on one at a time. He believes the Fed is making the right decisions and is currently in a delicate position as it missed meeting opportunities this year.
Cohn expects that the Fed will implement a total of 100 basis points in rate cuts this year, likely consisting of 25 basis point reductions over the next couple of months. When asked about inflation targets, he expressed a preference for slightly exceeding the target inflation rate, suggesting that a rate of around 2.2% would be more acceptable in a growing economy than undershooting the target.
Cohn also highlighted concerns about geopolitical risks and said that global tensions could lead to inflationary pressures by disrupting supply chains and increasing shipping costs.
Our Methodology
For this article, we use stock screeners to identify nearly 30 stocks above $100 billion market cap and $10 billion TTM net income. Next, we narrowed our list to 8 stocks that had a 5-year net income compound annual growth rate of above 10% and were most widely held by institutional investors. The most profitable blue chip stocks are listed in ascending order of the hedge fund sentiment, which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
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)
Market Cap: $1.494 Trillion
5-Year Net Income CAGR: 24.69%
TTM Net Income: $51.435 billion
Number of Hedge Fund Holders: 219
Third on our list of most profitable blue chip stocks is Meta Platforms, Inc. (NASDAQ:META), which is one of the American Big Tech that has evolved significantly since its inception. It has expanded its portfolio to include widely used platforms such as Facebook, Instagram, Threads, and WhatsApp.
While the company is making significant investments in several technology-related platforms and products, most of its revenue is generated through advertisement. Through strategic acquisitions and an expanding suite of products, it remains a key player in shaping the future of technology and communication.
On September 25, Meta (NASDAQ:META) introduced Orion, its first true augmented reality (AR) glasses, previously known as Project Nazare. These glasses aim to blend the appearance of traditional eyewear with advanced AR capabilities, marking a significant advancement in wearable technology.
The company is currently providing access to Orion for its employees and select external testers to refine the product before launching a consumer version. While it is still in the prototype phase and not yet available for consumers, it shows the commitment to creating a polished product. It plans to improve display quality, reduce the size further, and make the glasses more affordable as they move toward a consumer release.
Meta (NASDAQ:META) is expected to release its earnings on October 30 and some analysts are already showing optimism in its results. On October 9, The Fly reported that Cantor Fitzgerald analyst Deepak Mathivanan raised the price target for the stock from $660 to $670 while maintaining an Overweight rating on the stock.
The firm expects its Q3 results and Q4 outlook to surpass consensus estimates and noted strong ad performance in recent months and positive trends for future growth for the company. Cantor believes Meta (NASDAQ:META) will benefit from rising contributions from sectors like travel. Mathivanan mentioned that investor expectations are high due to recent strong performance, and they expect revenue guidance of $48 billion for Q4 to drive further share growth.
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 3rd on our list of the most profitable blue chip stocks to invest in. 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.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.