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, Financial), Amazon.com (AMZN, Financial), Apple Inc. (AAPL, Financial), Meta Platforms Inc. (META, Financial), Microsoft Corp. (MSFT, Financial), Netflix Inc. (NFLX, Financial) and Tesla Inc. (TSLA, Financial).
In 2022, all seven stocks were flattened. Here’s what each stock gained in 2017 to 2021, and what each stock has lost since I last wrote about them (Dec. 28, 2021).
| Stock | Five-year Gain through 2021 | Loss Dec. 28, 2021 through Dec. 23, 2022 |
| Alphabet | 265.6% | -39.7% |
| Amazon.com | 344.7% | -49.8% |
| Apple | 551.6% | -39.67% |
| Meta Platforms | 192.4% | -65.9% |
| Microsoft | 482.1% | -29.6% |
| Netflix | 386.6% | -51.7% |
| Tesla | 2,372.7% | -66.1% |
This column a year ago was titled “Why I Own Only Two of the Sacred 7” Those two were Alphabet and Apple.
The five stocks I suggested people avoid were down 46.8% from Dec. 28, 2021 through Dec. 23, 2022. To be sure, it was a down year, with the Standard & Poor’s 500 Total Return Index dropping 18.4%. But the Sacred Seven did much worse.
The two I liked were down 33.1%, better than most of their brethren but considerably worse than the S&P.
Here’s what I think of the Sacred Seven now.
Alphabet
In the past decade, Alphabet (GOOGL, Financial) 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% a year for the past decade).
The company’s subsidiaries include the Google search engine, You Tube video platform, Waymo self-driving cars and Deep Mind artificial intelligence unit. (My daughter works for Deep Mind, which may prejudice me in Alphabet’s favor.)
Amazon.com
I expect Amazon (AMZN, Financial) to be a business success, but a stock-market disappointment in 2023. The company lost momentum this year as people returned to brick-and-mortar stores. I expect that it will pick up market share in the next few years because people like the convenience of online shopping.
The stock, however, reminds me of IBM (IBM, Financial) and McDonald’s (MCD, Financial) in the Nifty Fifty Era around 1972. The companies did well but the stocks didn’t, because they were priced for perfection at about 60 times earnings. Amazon sells for 78 times earnings.
Apple
I still like Apple (AAPL, Financial) 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% profit margin. At 22 times earnings, the stock is more expensive than I usually prefer, but not outlandish.
Meta Platforms
In addition to Facebook, Meta Platforms (META, Financial) owns Instagram, Messenger and What’s App. That’s a worthy collection of assets, and the stock sells for only 11 times recent earnings. So I should like it, but 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
A powerhouse in both cloud computing and personal computing, Microsoft (MSFT, Financial) can boast a 10-year annual earnings growth rate of nearly 17%. Last year, however, it was below 4%. I think future growth will be way above 4%, and I think profitability will be excellent.
Alas, the stock is pricey. It sells for nearly 9 times the company’s revenue. To me, that’s a dangerously high multiple.
Netflix
The days of rapid subscriber growth for streaming companies seem to be over, now that we’ve already reached the point where more than half the programs Americans watch are streamed. To compete for market share, many streaming companies, including Netflix (NFLX, Financial), are spending heavily on original content.
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%. Last year? Less than 1%.
Tesla
The leading electric car maker is a cult stock. People adore it or hate it – and the same goes for CEO Elon Musk. Of all the Sacred Seven, Tesla (TSLA, Financial) had the best return in 2017 to 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.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].
