Google parent Alphabet (GOOGL) will replace Verizon Communications (VZ) in the Dow Jones Industrial Average at the opening of trading on Monday, June 29, making the 30-stock bastion of blue chip companies increasingly exposed to all things digital.

Alphabet is best known to consumers as the operator of Google and YouTube, but as S&P Global notes, GOOGL's diversified portfolio spans advertising, cloud infrastructure, artificial intelligence, hardware, self-driving cars and healthcare technology.

"Adding Alphabet will broaden and strengthen the DJIA's exposure to these dynamic areas of the U.S. economy," S&P Global said in a press release. "Its larger market capitalization and share price, together with the breadth of its businesses, make it a more representative Communication Services constituent in the DJIA."

The move refers to Alphabet's Class A shares. The Class C shares (GOOG) will not be in the Dow.

Telecom giant Verizon, which has been in the Dow since 1984, sounds like a pretty poky business by comparison. Apple (AAPL) replaced AT&T (T) in the Dow in 2015. You may notice a pattern here.

S&P Global notes that Verizon represents only one-half of one percentage point of the DJIA due to its low share price. The Dow is a price-weighted index, and thus "persistently lower-priced stocks have an immaterial impact on the index," S&P Global said.

As much interest as such events generate, being tapped for the Dow is more symbolic than material. After all, the S&P 500 is the main benchmark for U.S. equity performance. That's why the total amount of money passively tracking the index comes to around $12 trillion.

For example, the largest exchange-traded fund (ETF) in the world, the Vanguard S&P 500 ETF (VOO), has more than $1.7 trillion in assets under management alone. A comparable product for the DJIA, the State Street SPDR Dow Jones Industrial Average ETF Trust (DIA), holds just $43 billion in assets under management.

Lastly, as noted above, the Dow is weighted by price rather than by market cap. Although GOOGL has an outsized influence on the movements of cap-weighted benchmarks, such as the S&P 500, Nasdaq Composite and Nasdaq-100, at current prices, GOOGL will be as material to the DJIA as, roughly, Sherwin-Williams (SHW).

Nevertheless, the blue-chip average will now include many of the biggest names among tech and communication services stocks: Apple, Amazon.com (AMZN), Nvidia (NVDA) and Microsoft (MSFT), as well as Salesforce (CRM), Cisco Systems (CSCO) and International Business Machines (IBM).

Is GOOGL stock a Buy?

GOOGL joining the Dow is not in and of itself a reason to buy the Magnificent 7 stock. Nothing about its fundamentals has changed. And while shares are currently in a 15% drawdown from their May peak, Wall Street remains bullish.

Of the 63 analysts covering GOOGL surveyed by S&P Global Market Intelligence, 42 rate it at Strong Buy, 14 say Buy and seven call it a Hold. That works out to a consensus recommendation of Strong Buy.

The Street's investment case for GOOGL comes down to AI. (Duh.)

"Alphabet remains at a minimum competitive, if not a leader, in the development of generative AI, the rapidly developing and perhaps disruptive new computing paradigm," writes Argus Research analyst Joseph Bonner, who rates shares at Buy. "We continue to like Alphabet's underlying businesses and believe that GOOGL shares are attractively valued given the company's growth runway."

The bottom line: If you liked GOOGL before its accession to the bluest of blue-chip clubs, there's no reason to change your mind. But don't buy it just because it's a better fit for the Dow Industrials than Verizon.

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Disappointed with the performance of the Dow Jones Industrial Average, I decided in 2023 to reinvent the index to reflect the changing nature of the U.S. economy. I kept 11 of the Dow's 30 components and added some choices from among personal favorites, old 10 Best lists and the Wired Index, concocted by the tech magazine in 1998.

Top 30 is beating expectations. Over the past 12 months, it returned 27%, compared with 24% for the Dow itself. Total cumulative return for three years: 69% for Top 30, 54% for the Dow.

Investing lessons from the Top 30

Performance, however, isn't the only story Top 30 tells. A review of the past 12 months provides a few broad lessons on investing:

1. Even when your portfolio has a great year, you will have a lot of losers

Among my Top 30 stocks, 10 declined, four of them by more than 20% each. The Dow had seven losers in 2025 and eight in 2024. Losing is part of the game. The S&P 500, for example, has declined in 13 of the past 60 calendar years. A churning stomach is the price we all pay for the substantial returns that stocks provide.

2. Diversification is essential

When some sectors fall, others rise, mitigating losses. As I wrote when I introduced Top 30, the Dow is more akin to a quirky managed portfolio than an index. For instance, it lacks enough technology stocks, and it has no real estate or transportation stocks at all.

Top 30 better reflects the U.S. economy. Over the past year, many retailers, packaged goods and software firms suffered, but their declines were offset in Top 30 by the gains of energy companies and internet platforms.

3. Reversion to the mean is a powerful force

In its first year, Top 30 beat the Dow by 13 percentage points. Now, my aggregate lead is much thinner — and I expect it to get thinner still — but I am hoping I'll remain ahead.

4. Trust your instincts

In last year's review of the Top 30's performance, I had considered making three changes. I was worried about “management failures” at UnitedHealth Group (UNH) and had concerns about Nike (NKE) and Lululemon Athletica (LULU) because of tariffs, stronger competition and tired brands. But I decided to stay the course. That turned out to be a mistake. All three stocks declined, two by double digits, and Lululemon was my biggest loser.

Top 30 changes

1. Traded Caterpillar for Deere

My biggest winner, Caterpillar (CAT), nearly tripled in price over the past 12 months. The company increased sales of building equipment thanks to the construction boom triggered by federal infrastructure bills and data center demand. But the stock makes me nervous. Its price-to-earnings ratio (P/E) is too high, and investment research service Value Line sees revenue growth slowing from an annual average rate of 8.5% over the past five years to 6% for the next five.

I'm going to trade Caterpillar for Deere (DE), another large equipment manufacturer. It's smaller, less pricey and has been harmed by a cyclical downturn in agriculture that will inevitably reverse.

2. Swapped Lululemon for Costco

I was in love with Lululemon years ago, but its style of yoga wear now has too many imitators. Also, my list needs a big-box giant retailer. The obvious choice is Costco Wholesale (COST), a brilliantly managed company with $275 billion in revenues.

Costco keeps its prices and operating costs low and its customers happy. The stock is not going to do anything spectacular, and it's not cheap. You're paying for consistency and the ability to ride out any storm — valuable characteristics in a portfolio.

3. Substituted Nike for NextEra Energy

I actually like Nike and continue to recommend it, but I realized that I have a huge gap in the portfolio at a time when demand for electricity is rising sharply. So I am substituting a utility, NextEra Energy (NEE), with an all-of-the-above strategy to generate electricity using the gamut of resources, including renewables.

NextEra's talented CEO, John Ketchum, is projecting 8%+ annual growth in earnings over the next 10 years. No one can accurately predict that far ahead, of course, but demand for electricity is nearly insatiable. Shares are priced higher than the typical utility, as they should be.

4. Replaced UnitedHealth with McKesson

Finally, I need a large healthcare company to replace UnitedHealth. I'm shunning politically vulnerable insurers and hospitals and instead choosing a well-run company with burgeoning sales and profits and low capital-investment requirements. It's McKesson (MCK), one of three firms that control 90% of the market for the distribution of pharmaceuticals and medical and surgical products. Shares have quadrupled in five years, but when you consider that earnings are growing at 12% annually, the P/E remains reasonable.

Top 30 non-movers

Three of the four stocks I am eliminating were components of the Dow: Caterpillar, Nike and UnitedHealth. That leaves eight on the Top 30 list, and the most timely for investors is Microsoft (MSFT), which, unlike other tech trillionaires, trades at about the same price today as it did two years ago — despite revenues that rose 17% in the most recent quarter. Earnings have increased in what I call a beautiful line, up every year for more than a decade. Investors worry that Microsoft is spending too heavily on artificial intelligence and that it laid off 15,000 employees in 2025. I see an underpriced tech giant getting its house in order for a new era.

Among the other keepers, I'm especially pleased with Amphenol (APH), a maker of critical components for the telecommunications sector. It's hardly a household name, but it's the 54th-largest U.S. company in the S&P 500 by market capitalization (price times shares outstanding) and it roughly doubled in the past year.

I was also glad to see Starbucks (SBUX), under new leadership, moving up again. Alphabet (GOOGL) remains my top tech-platform choice because of its adaptation to AI and the growth of YouTube, the online video-sharing platform.

Netflix (NFLX) was among the losers this year, but never, ever sell it. Salesforce (CRM) and Automatic Data Processing (ADP) fell sharply on concerns that AI would make their services less valuable or even obsolete. I believe the negative sentiment is overdone.

The Dow is weirdly weighted by the prices of its components; a 1% move in Goldman Sachs (GS), at $927 a share, has nearly 20 times the impact of a similar move in Verizon Communications (VZ), at $47. Top 30 is equally weighted. I don't expect readers to own all 30 stocks, buying and selling to maintain a 3.33% proportion for each one in the portfolio. A smart asset manager may turn Top 30 into a fund someday, but until then, you'll likely want to use the list to glean ideas for your own purchases rather than buying the whole thing.

A final note: Readers ask from time to time why I don't own most of the stocks I recommend. Rest assured that I am not being hypocritical or unenthusiastic about companies I write about. Instead, I have grown uncomfortable with the potential conflicts in writing about what I own, so I am sticking almost exclusively to index funds. You don't have to.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns shares in Netflix and Microsoft. You can reach him at JKGlassman@gmail.com.

This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to Kiplinger Personal Finance Magazine to help you make more money and keep more of the money you make.

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Who would have believed at the turn of the 21st century that there would be such a thing as a trillion-dollar stock? (Or that the Dow would reach 36,000, for that matter?)

At the end of 2000, the most valuable company was Exxon Mobil (XOM), with a market capitalization — price times shares outstanding — of roughly $302 billion. That's one-fifteenth the value of Nvidia (NVDA) today. Just counting to a trillion incredibly fast, with no bathroom breaks, would take 32,000 years, according to the Q&A platform Quora.com.

In August 2017, however, I wrote, "It may be a matter of months, or more likely a few years, but sometime soon a U.S. company will breach the trillion-dollar mark." I was more right than I expected.

At the time, I offered estimates of when each would hit a trillion in market cap. Apple (AAPL) was first, as I predicted, but it took just 11 months, a year and a half ahead of schedule. The other four quickly followed: Amazon.com (AMZN) in September 2018; Microsoft (MSFT) in 2019; Alphabet (GOOGL), the former Google, in 2020; and Meta Platforms (META), the former Facebook, in 2021.

At that point, I wrote another column, saying, "I'm doubling down and recommending them all." Sure enough, as a group, they have nearly doubled. (Prices, returns and other data are as of September 30; stocks I like are in bold.)

Today, with the additions of Nvidia, Tesla (TSLA), Broadcom (AVGO) and Berkshire Hathaway (BRK.B), membership in the Trillion-Dollar Club (let's call it TDC) has grown to nine. The combined market cap of these stocks accounts for 41% of the capitalization of all the companies of the S&P 500 Index. A mere 10 years ago, the nine largest U.S. stocks had a total market cap of 18% of the S&P 500.

Today, eight of the nine members of the TDC are technology (or tech-related) stocks, and for the ninth, Berkshire, Apple alone represents one-fifth of assets. By contrast, in 2015, the top nine consisted of just five tech stocks, plus companies in banking, pharmaceuticals and energy, along with Berkshire. In 2005, only two tech companies graced a highly diversified top nine.

Concentrated bets

The top-heavy nature of the S&P 500 today should make any investor worried. The market is betting heavily, not simply on tech but on artificial intelligence. But you will notice from the bold-facing that I still like trillion-dollar stocks — at least the initial cohort.

Why? Let's start with Alphabet. Since 2017, revenues have quadrupled and earnings have quintupled, yet the stock's price-to-earnings (P/E) ratio, based on a consensus of analysts' forecasts of profits for the year ahead, has declined from 30 to 25. Analysts at investment research firm Value Line expect earnings will rise an average of 12% annually for the next five years, indicating a perfectly reasonable valuation.

Alphabet owns the global entertainment asset with the greatest potential, YouTube, with nearly 3 billion active users. The company is also sitting on more than $95 billion in cash and has very little debt; it has even started paying a small dividend.

Amazon's P/E has dropped from nearly 200 to 32. It dominates the e-commerce market, accounting for 38% of sales, compared with 6% for number two Walmart (WMT).

Apple's valuation has risen to 33, but it was absurdly low (16) in 2017. The company is a profit machine; it earns about 25 cents on every dollar of sales, and those dollars will exceed 400 billion this year. Microsoft has tripled its earnings since 2017. It has a powerful cloud-computing business and has integrated AI into all its platforms.

Meta gets the least respect. Its forward P/E has fallen from 29 in 2017 to 25, despite net profits rising from $18 billion to close to an estimated $72 billion in 2025. The company, which owns WhatsApp and Instagram, recently won its antitrust case, leaving the ownership of its assets intact.

I am less enamored of the TDC newbies. Nvidia was once a lovely choice. In making it one of my 10 stock picks for 2020, I wrote that it "may be the best artificial intelligence play." Since then, its market cap has risen from $122 billion to $4.5 trillion.

Ponder that number. It’s more than the capitalization of all the listed stocks in the U.K. It is greater than the GDP of Japan. Nvidia, with its graphic processing units, has little competition for top-level AI chips used in data centers, but that is going to change. There is too much money to be made.

Broadcom, a semiconductor company with a niche in AI chips called application-specific integrated circuits, which have specialized functions, is the change agent. It became the newest member of the TDC in December 2024 after its stock price increased by a factor of six in four years. Value Line expects earnings to continue rising at a 24.5% annualized clip through 2030.

Broadcom, like Nvidia, does not own manufacturing plants, or "fabs." That allows the company to retain its capital, but it also leaves it vulnerable to supply interruptions. My other worries about the future of the chip business are government intervention, geopolitical threats and a lack of electricity to power data centers in the U.S.; still, it’s hard not to like Broadcom.

Tesla, which reached $1 trillion in market cap in October 2021, then fell out of the club a few times and came back in, looks more attractive now that its CEO is getting back to work. I am especially excited about its battery storage business.

But Tesla is clearly a meme stock, driven by the enthusiasm of fans. Its revenues have been flat for three years, profits are microscopic by TDC standards, and capital spending requirements are huge.

The outlier, Berkshire, has a P/E in the mid-20s and a brilliant CEO in his nineties. I'm loyal to Warren Buffett and confident in his successors. Berkshire has a hoard of liquid assets, and insurance is the best business in America outside of tech.

When I wrote about trillion-dollar stocks in 2021, I warned about "a sort of law of financial gravity." It's not hard to imagine a stock with a market cap of $100 billion becoming a four-bagger (that is, quadrupling in value) or even a 40-bagger, as Nvidia has proven.

But could Nvidia quadruple from its current value? Could Microsoft or Apple, at $3.8 trillion each? It seems doubtful. Still, doubles or triples are satisfying.

The legacy TDC companies have shown a remarkable ability to innovate and adapt. Operating-system software, for example, used to dominate Microsoft's revenues. Now, it represents only about one-tenth of sales. Server and cloud services account for 40% today, with gaming and LinkedIn making significant contributions.

These are truly exceptional businesses with extensive moats and deep human capital. As crazy as it sounds, they deserve to be trillion-dollar companies — and to keep growing.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. Of the stocks mentioned here, he owns Amazon.com. You can reach him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Stocks opened higher Friday as Amazon.com's (AMZN) impressive results helped ease concerns that big spending on artificial intelligence (AI) isn't bearing fruit. Today's gains had all three main indexes closing out the historically volatile month of October with impressive returns.

At the close, the blue-chip Dow Jones Industrial Average was up 0.09% at 47,562, the broader S&P 500 was 0.3% higher at 6,840, and the tech-heavy Nasdaq Composite had added 0.6% to 23,724. For the month, the benchmarks rose between 2.5% and 5%.

Amazon helped boost all three indexes, climbing 9.6% after its third-quarter results. The e-commerce giant beat on both the top and bottom lines and said revenue in its Amazon Web Services cloud segment was up 20% year over year.

"We continue to see strong momentum and growth across Amazon as AI drives meaningful improvements in every corner of our business," said Amazon CEO Andy Jassy in the earnings release. "AWS is growing at a pace we haven't seen since 2022."

The company also raised its full-year capital expenditures forecast – to $125 billion from $118 billion – and Chief Financial Officer Brian Olsavsky expects spending to be even higher next year.

"We'll continue to make significant investments, especially in AI, as we believe it to be a massive opportunity with the potential for strong returns on invested capital over the long term," said Olsavsky on the earnings call.

Apple edges higher after earnings

Apple (AAPL) bounced between positive and negative territory in Friday's session, eventually closing down 0.4%.

Late Thursday, the tech giant reported higher-than-expected fiscal fourth-quarter earnings and revenue. It also gave a strong revenue forecast for its fiscal first quarter.

But Wall Street seemed a little worried about softer-than-expected iPhone revenue and weak sales in China.

"Tariffs continue to remain a headwind to margins," says Wedbush analyst Daniel Ives, although he notes that the majority of iPhones being sold in the U.S. are now produced in India, "given the complex Trump tariff backdrop."

Ives reiterated his Outperform (Buy) rating on the blue chip stock and raised his price target to $320 from $310 – representing implied upside of more than 18% to current levels – on "increased confidence in the Apple growth story as the iPhone 17 launch is off to a great start heading into the key holiday December quarter in the U.S. and China."

Exxon hikes its dividend for a 43rd straight time

Over in the energy sector, Exxon Mobil (XOM, -0.3%) reported third-quarter earnings of $1.88 per share on revenue of $3.4 billion, beating analysts' estimates even as oil prices slumped more than 4% over the three-month period.

"We delivered the highest earnings per share we've had compared to other quarters in a similar oil-price environment," said Exxon CEO Darren Woods in the earnings release. "In Guyana, we broke records with quarterly production surpassing 700,000 barrels per day," and "we also set another production record of nearly 1.7 million oil-equivalent barrels per day [in the Permian basin]."

Exxon also hiked its quarterly dividend by 4% to $1.03 per share, marking the 43rd straight year its raised its payout.

Why is this important to investors?

"Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with," writes Kiplinger contributor Dan Burrows in his feature "Best Dividend Stocks to Buy for Dependable Dividend Growth."

Case in point: Over the past 12 months, XOM is down 1.9% on a price basis, but when you add in the dividend, its total return is +2%.

Netflix splits its stock

In non-earnings news, Netflix (NFLX) jumped 2.7% after the streaming giant announced a 10-for-1 stock split. This marks the third stock split for Netflix: a 2-for-1 split on February 11, 2004, then a 7-for-1 on July 14, 2015.

"The purpose of the stock split is to reset the market price of the Company's common stock to a range that will be more accessible to employees who participate in the Company's stock option program," Netflix said in its press release.

The split won't change anything about the company's fundamentals or market valuation. Rather, it's similar to making change. In NFLX's case, it will be equivalent to breaking a $10 bill into 10 $1 bills.

Based on NFLX's October 31 close at $1,118.86, the 10-for-1 stock split will bring the share price to about $112.

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Earnings were the main driver of price action on Thursday, as market participants parsed quarterly results from some of Wall Street's largest companies. A highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping sparked plenty of chatter, too.

Facebook parent Meta Platforms (META, -11.3%) and tech giant Microsoft (MSFT, -2.9%) made two of the most notable post-earnings moves today. Both Magnificent 7 stocks ended sharply lower as spending concerns overshadowed quarterly beats.

Meta, for one, reported higher-than-expected third-quarter earnings and revenue and strong fourth-quarter guidance. It also raised the lower end of its full-year expense forecast by $2 billion, now expecting total expenses of $114 billion to $118 billion in 2025 – up nearly 22% at the midpoint from 2024.

And in Meta's earnings call, Chief Financial Officer Susan Li said the company expects "total expenses will grow at a significantly faster percentage rate than 2025, with growth primarily driven by infrastructure costs, including incremental cloud expenses and depreciation."

Microsoft beat on the top and bottom lines for its fiscal 2026 first quarter, but the company's capex of $34.9 billion came in above the $30 billion it forecast in July.

Additionally, Chief Financial Officer Amy Hood said on the earnings call that the capex growth for fiscal 2026 will "be higher than fiscal year 2025" amid increased spending on "GPUs and CPUs" to power its artificial intelligence (AI) infrastructure.

Wall Street isn't worried about Alphabet's AI spending

Increased spending isn't a concern for Alphabet (GOOGL), though, with the communication services stock jumping 2.5% after its earnings report.

The Google parent said third-quarter earnings rose 35% year over year to $2.87 per share, while revenue increased 16% to $102.3 billion – both figures higher than analysts expected.

Google Services revenue jumped 14% on solid YouTube ad sales, while Google Cloud revenue, which houses its AI segments, surged 34%. Alphabet also increased its full-year capital expenditures amid "growth across our business and demand from Cloud customers."

"Alphabet just delivered its first-ever $100 billion quarter, silencing the doubters with standout performances in both Search and Cloud," said Matt Britzman, senior equity analyst at Hargreaves Lansdown. "AI Overviews and AI Mode are clearly resonating with users, helping to ease fears that Google's core search business is under threat from generative AI."

Chipotle suffers its biggest one-day drop in 13 years after earnings

Elsewhere on the earnings calendar, Chipotle Mexican Grill (CMG) plunged 18.2% after its third-quarter results, marking the blue chip stock's biggest one-day drop since July 20, 2012, whe it fell 21.5%.

The burrito chain's Q3 earnings of 29 cents per share were in line with estimates, but revenue of $3 billion fell short, as traffic declined 0.8%. It also said it expects full-year same-store sales to contract by a low single-digit percentage.

"Our third-quarter performance fell short of our expectations due to persistent macroeconomic pressures," said Chipotle CEO Scott Boatwright in the earnings call.

He pointed to the 25- to -35-year-old age group – a key demographic for Chipotle – as "facing several headwinds, including unemployment, increased student loan repayment and slower real wage growth."

Trump says he'll cut tariffs on China

In one of the week's high-stakes events, President Trump and Chinese President Xi Jinping met in their first face-to-face meeting in six years.

The two leaders reached agreements on several issues, with Trump saying he will lower tariffs on China related to fentanyl to 20% from 10% and extend the pause on reciprocal tariffs for the next 12 months.

Xi, meanwhile, authorized the purchase of agricultural products, including soybeans, from the United States. Beijing will also delay restrictions on rare earth minerals for one year.

The leaders also discussed Ukraine and Russia, with Trump telling reporters that the two countries are "both going to work together to see if we can get something done."

But the agreements weren't enough to overcome disappointing mega-cap earnings. The blue-chip Dow Jones Industrial Average fell 0.2% to 47,522, the broader S&P 500 shed 1% to 6,822, and and the tech-heavy Nasdaq Composite slumped 1.6% to 23,581.

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Alphabet (GOOGL) shares are red-hot Wednesday after a federal judged ruled in the tech conglomerate's favor.

Specifically, U.S. District Judge Amit P. Mehta barred the company from signing exclusive search engine deals, but stopped short of requiring it to divest Google's Chrome browser.

While banning Alphabet from entering new deals, Mehta allowed the company to maintain current agreements, including one with Apple (AAPL) that allows Chrome to be the default search engine in its Safari browsers.

Last summer, Mehta ruled that Google had unlawfully maintained a monopoly in search and text advertising and that its distribution agreements were "exclusive and have anticompetitive effects."

And in November, Department of Justice officials expressed their support for forcing Google to sell Chrome.

But in his ruling on Tuesday, Mehta admitted that the marketplace is changing, due in part to the emergence of artificial intelligence (AI). "There are strong reasons not to jolt the system and to allow market forces to do the work," he wrote.

Still, the ruling requires that Google now share its Chrome search data with competitors.

"Today's decision recognizes how much the industry has changed through the advent of AI, which is giving people so many more ways to find information," Google said in a statement. "Now the Court has imposed limits on how we distribute Google services, and will require us to share Search data with rivals. We have concerns about how these requirements will impact our users and their privacy, and we're reviewing the decision closely. "

What does Wall Street say about Google stock?

Wall Street never seemed too worried about the antitrust case against Alphabet. Heading into Wednesday's session, GOOGL stock was up 30% year over year, nearly doubling the return of the broader S&P 500.

And of the 65 analysts tracking the communication services stock who are followed by S&P Global Market Intelligence, 54 say it's a Buy or Strong Buy, 11 have it at Hold and not a single one rates it at Sell. This works out to a high-conviction consensus Buy recommendation.

Wedbush analyst Scott Devitt is one of those with an Outperform (Buy) rating on GOOGL stock.

The outcome of the case "is broadly favorable for Google, in our view, with the court ruling against the most severe remedy proposals introduced by the DOJ," Devitt writes in a note to clients.

As for GOOGL stock, the analyst believes "there is a compelling case for multiple expansion in the coming quarters and the discount relative to peers is unwarranted."

Devitt notes that Tuesday's ruling eliminates a major overhang for Alphabet and that "management is repositioning the business as a winner in the AI space, with strong demand trends and an acceleration in Cloud growth."

The analyst adds that he is "increasingly constructive in the longer-term durability of Google's Search business," and lifted his price target to $245 from $225, representing implied upside of nearly 16% to GOOGL stock's September 2 close.

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"The thing that’s really important to recognize," Nvidia (NVDA) CEO Jensen Huang recently said, "is that this is the largest infrastructure buildout in human history." His remark about artificial intelligence (AI) is not hyperbole.

The rapid adoption of generative AI and large language models (LLMs) has ignited a surge in spending on data centers, networking equipment and specialized semiconductors, chips and processors needed to train and run AI systems.

Generative AI will boost global GDP by 7%, add close to $7 trillion in value and drive increased productivity in the next decade. Venture funding, a key catalyst for growth so far, surged 85% year over year to $211 billion in 2025.

Hyperscale technology companies Alphabet (GOOGL), Amazon.com (AMZN), Meta Platforms (META) and Microsoft (MSFT) are expected to spend about $650 billion on AI-related infrastructure in 2026.

Yet the investment frenzy isn't just about building data centers. Whether you see an AI boom or an AI bubble, the broader promise lies in AI's potential to transform the global economy.

Companies across sectors and industries are deploying AI tools to automate tasks, analyze information faster and improve decision-making processes.

These capabilities can translate into higher productivity, lower operating costs and more efficient workflows.

One of the most promising developments is the rise of AI agents, which autonomously perform complex tasks such as customer service, research, software development and business operations.

Unlike earlier forms of automation that handled narrow tasks, AI agents can coordinate multiple steps in a workflow, interact with other systems and adapt to changing conditions.

As these technologies mature, businesses expect them to unlock new levels of efficiency and innovation.

Who are the big names in this AI revolution? Here's an overview of 10 major players you should know.

Amazon.com

AI applications are often built on cloud platforms. Some of the reasons include scalability, low costs, centralization of data, monitoring, analytics and customization. All that is good news for Amazon, as Amazon Web Services (AWS) is the world leader in cloud technologies.

AWS has been retooled as a comprehensive platform for AI development. Amazon management said AWS generated $35.6 billion in fourth-quarter sales, a 24% year-over-year increase.

AWS offers several systems, such as SageMaker and Bedrock, which make it easier to use, manage and deploy AI models and agents. Bedrock allows companies to access leading generative AI models from multiple providers through a managed service.

Amazon has strengthened its AI ecosystem through major strategic investments and partnerships. The company has invested about $8 billion in Anthropic, whose Claude models are tightly integrated with the Bedrock platform and run primarily on AWS infrastructure.

In early 2026, Amazon struck a major partnership with OpenAI and invested $50 billion as part of a $110 billion funding round. The transaction has expanded a long-term cloud computing contract.

Amazon has also built several AI applications on its AWS infrastructure, such as the Amazon Q assistant, which the company used to save $250 million in a Java migration project. Without this tool, the project would have taken 4,500 developer years. Amazon Q is designed to help developers and enterprise workers generate code, analyze data and automate tasks across AWS systems.

But AWS is more than software. Amazon has invested heavily in creating its own silicon chips for processing AI workloads. The latest offering is Trainium2, which has shown strong performance at relatively low costs.

Amazon has also developed Inferentia chips for AI inference workloads, part of a broader strategy to lower the cost of running large AI models and reduce reliance on third-party processors.

OpenAI

In late 2015, investors including Elon Musk, Reid Hoffman, Peter Thiel and Sam Altman co-founded OpenAI to "ensure that artificial general intelligence — AI systems that are generally smarter than humans — benefits all of humanity."

The first few years were far from encouraging, but in 2019, the company realized that the best strategy was to pursue generative AI, which led to the building of a series of generative pre-training transformer (GPT) models.

This became the foundation for the launch of ChatGPT in late 2022, when generative AI quickly became mainstream. Within two months, it would attract more than 100 million users, making it history's fastest-growing app.

While the AI market has become intensely competitive, OpenAI's models remain highly popular. The company sells access to its models to developers and also generates revenues from different versions of ChatGPT.

Revenue has surged in recent years, hitting about $13 billion in 2025 and reportedly surpassing $25 billion in annualized revenue by early 2026.

OpenAI's models are also widely used by enterprises through cloud platforms and developer APIs. This makes it a foundational layer for many generative AI applications.

A major driver of this growth has been OpenAI's close partnership with Microsoft, which has invested billions of dollars in the company and integrated OpenAI's models into products such as Azure, Microsoft 365 Copilot and GitHub Copilot.

Databricks

In 2009, a group of computer science students at University of California, Berkeley created an open-source project called Apache Spark. They wanted to make it easier to manage data processing for AI models.

The timing was spot-on, as deep learning was becoming more practical and powerful. As Apache Spark grew more popular, the students would go on to found Databricks, a platform for data management, providing analytics, security and governance.

Databricks has since expanded into a broader "data and AI platform," helping organizations store, analyze and prepare massive datasets used to train and run AI models.

More than 20,000 organizations worldwide — including Comcast (CMCSA), Shell (SHEL) and Rivian Automotive (RIVN) — rely on Databricks to take control of their data and put it to work with AI.

Databricks CEO Ali Ghodsi has been aggressive with acquisitions. In 2023 the company acquired MosaicML for about $1.3 billion. This gave Databricks the technology to help customers build and train their own LLMs. Then in 2024, the company acquired Tabular for a reported $2 billion. The deal strengthened Databricks’ capabilities around data lakehouse architecture and open table formats, which are increasingly important for managing the large datasets used in AI applications.

In late December of 2025, Databricks announced its latest funding round of $4 billion at a $134 billion valuation. Investors included Insight Partners, Fidelity, J.P. Morgan Asset Management, Andreessen Horowitz, BlackRock and Blackstone.

Meta Platforms

Unlike many other megacap tech firms, Meta's AI strategy has focused on building open models that developers can freely use and adapt. The company launched Llama in early 2023, and the models quickly became popular with researchers and startups.

Meta has continued to expand the lineup. In 2025 the company released new multimodal versions of Llama capable of processing text, images and other types of data.

A key advantage for Meta in the AI race is its enormous scale. More than 3.5 billion people (PDF) use at least one of the company's apps every day. This gives Meta a powerful distribution channel for AI services.

Meta is also using AI extensively in its core advertising business. The company has been deploying systems to automate ad targeting, creative generation and campaign optimization for advertisers. These efforts have already shown results, with improved revenue and lower costs.

Ultimately, the mission for AI is to build a platform for "personal intelligence." CEO Mark Zuckerberg (PDF) explains it: "We're starting to see the promise of AI that understands our personal context — including our history, our interests, our content and our relationships."

According to Zuckerberg, "A lot of what makes agents valuable is the unique context that they can see, and we believe that Meta will be able to provide a uniquely personal experience."

Alphabet

In 2017, researchers at Alphabet's Google published a paper on machine learning, "Attention Is All You Need." The paper introduced the transformer model (PDF), which is what powers generative AI.

While Google continued the research, it wasn't focused on commercialization until the launch of ChatGPT. Worried that its core search business was in jeopardy, it scrambled to create its own products, such as Bard. But they were disappointing.

Since then, Google has made significant strides. The company's Gemini 3 model has demonstrated strong results against rival LLMs, including those from OpenAI and Anthropic. The chat app has about 750 million monthly users.

"As an ex-Googler, I’m very impressed by the amount of progress and efficiency to become a force in not only building models but also training data," says Shanea Leven, CEO at Empromptu AI.

Google has "such a large corpus of data," Leven adds. "They should be the leaders without much of the backlash OpenAI and Anthropic have been getting."

Google has also aggressively integrated AI across various segments. For example, search has an "AI mode."

Its AI investments are starting to make a major impact on the company’s growth: Alphabet reported an 18% increase in revenue to $114 billion (PDF) for the fourth quarter, driven by increased monetization of the ad business and the cloud division.

Nvidia

Founded in 1993, Nvidia was one of the pioneers of graphics processing units (GPUs) and was initially focused on the fast-growing gaming market.

But in 2012, Alex Krizhevsky, Ilya Sutskever and Geoffrey Hinton showed that Nvidia GPUs could be effective in training sophisticated AI models for tasks such as image recognition. The chips were able to handle huge amounts of data in parallel. Another key advantage was Nvidia’s Cuda software system, which allowed for customization.

At the time, the company had a market cap in the $7 billion-to-$8 billion neighborhood. Elevated by the AI revolution, NVDA is now a $4 trillion stock and is the world's most valuable publicly traded company.

Nvidia earnings continue to grow at a blistering rate. Management reported fiscal 2025 fourth-quarter revenue growth of 73% to $68.1 billion. More than 91% of the top-line came from data center hardware, with a focus on training AI models.

The market is expected to transition toward inference, which is how AI systems respond to queries and actions. Management has been preparing by bolstering its CPU segment, its efforts paying off in February with Nvidia's announcement that Meta will buy "tens of billions of dollars' worth" of Nvidia's Grace and Vera CPUs.

"The part that matters most for the AI trade is not simply that NVIDIA is selling more GPUs," Futurum Chief Market Strategist Shay Boloor observes, "but that the revenue mix is proving the stack is moving from training-only narratives into full AI factories where compute and networking are one integrated purchase decision."

As Boloor sees it, "Jensen Huang has basically framed the company as an AI infrastructure provider rather than a chip vendor."

Microsoft

In 2019, Microsoft CEO Satya Nadella agreed to invest $1 billion in OpenAI. At the time, it was a risky proposition. OpenAI was still a fledgling startup, and the launch of ChatGPT wouldn't happen for another three years.

But Nadella knew AI was strategic to the success of Microsoft, and OpenAI had a standout team of data scientists. He would eventually invest another $13 billion in OpenAI.

The investment has turned into a home run. Microsoft got exclusive access to OpenAI models while becoming its sole cloud provider. This was critical in giving Microsoft a head-start in the AI race.

The OpenAI relationship has been critical for the growth in Microsoft's cloud business, where revenue was up 39% during its fiscal second quarter.

At the same time, Microsoft has struggled with building its own applications, such as Copilot. This system has lagged, such as against rivals like Gemini, Anthropic’s Claude, and ChatGPT.

To bolster its efforts, Microsoft introduced Copilot Cowork, an agentic AI automation system that according to Nadella "turns your request into a plan and executes it across your apps and files, grounded in your work data."

Anduril

Palmer Luckey started building virtual reality (VR) headsets when he was 16 years old. Relentless with his innovation, such as adding stereoscopic 3D, wireless capabilities and wider fields of views, his efforts were the foundation of a startup called Oculus VR, which he launched when he was 19.

To fund the development, Luckey pulled off a successful Kickstarter campaign, raising $2.4 million. In just a couple years, he'd sell the company to Meta for $2 billion.

While working at Meta, Luckey became intrigued with another startup opportunity. The pace of innovation in the defense industry was too slow, he concluded, and he saw an opportunity to build a company that would leverage software, AI and inexpensive hardware.

In 2017, he left Meta to pursue this startup, called Anduril. "The company shows what happens when AI is applied to a specific high-stakes domain," Empromptu.ai co-founder and CEO Shanea Leven said.

At the core of Anduril is its Lattice AI platform, an autonomous command-and-control layer that processes huge amounts of data from sensors. Lattice AI also powers the company's drones, as well as U.S. Air Force jets and undersea vehicles.

Like many companies developing cutting-edge military technology, Anduril has faced setbacks. Some of its autonomous systems and drones have experienced failures during military tests and exercises, including drone crashes and mechanical issues in prototype systems.

Regardless, there remains strong interest from investors. According to The Wall Street Journal, Thrive Capital and Andreessen Horowitz are leading a massive investment in Anduril at an estimated valuation of $60 billion.

Anthropic

Former OpenAI executives Dario Amodei and Daniela Amodei founded "safety-first" AI company Anthropic in 2021 following disagreements with their previous employer about general strategic direction and AI safety in particular.

Anthropic's latest model is Claude Opus 4.6, widely regarded as one of the top frontier AI models for reasoning, coding and complex multistep tasks.

As for the growth of the business, it's been rapid. The annual run-rate is near $20 billion, up from $9 billion in 2025, according to Bloomberg. To fund its future ambitions, Anthropic announced a $30 billion venture round in February at a $380 billion valuation.

A dispute with the Department of War (formerly, the Department of Defense) about the developer's refusal to disable safety features in its models led the Pentagon to label Anthropic a "supply-chain risk," essentially banning its tech or federal use.

Anthropic has filed a lawsuit against the Pentagon, claiming that it had been targeted. The dispute represents a threat to billions of dollars of revenue from government contracts.

xAI

In 2023, Elon Musk founded xAI to build powerful generative AI models and applications. Musk assembled a veteran team of researchers and AI experts from companies such as OpenAI and Google.

The AI application of xAI is Grok, a conversational AI assistant (launched in late 2023). To accelerate distribution, Musk integrated the system into X.

Grok has been controversial, though. Then again, Musk wanted a system that had fewer filters for content moderation. The result is that the responses from Grok have sometimes been offensive or misleading.

For example, critics have alleged that the company's image-generation system creates sexualized deepfakes of unconsenting women and minors. This has led to various investigations and lawsuits.

In the meantime, Musk has made deals to accelerate the growth. Last year, xAI acquired X in an all-stock swap for $33 billion.

In January, xAI announced a $20 billion funding round led by Valor Equity Partners, Stepstone Group, Fidelity, Qatar Investment Authority, Abu Dhabi's MGX and Baron Capital Group. Then SpaceX agreed to purchase xAI, establishing a valuation for the combined entity of $1.25 trillion. The company plans to launch its IPO in July.

According to Musk, SpaceX is "the most ambitious, vertically integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet."

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In the film The Magnificent Seven, seven gunslingers help a band of simple townsfolk overcome an army of baddies (worth watching if you haven't already – either version). But that's not the group that concerns us here. Instead, it's the stocks of mega-size companies – Alphabet (GOOGL), Amazon.com (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – that have soared in price over the past year, propelling the broad market to double-digit returns. These seven aren't battling villains, but they have armed investor portfolios with lots of extra dollars. 

Since the start of 2023, the Magnificent Seven stocks, or the Magnificent 7 stocks as it's sometimes written, which top the S&P 500 index, have gained a cumulative average of 107%. The benchmark, by comparison, is up 26% over the same period. "Triple-digit returns are not unusual in the land of risky small-cap companies," says Scott Opsal, director of research and equities at Leuthold Group, "but for the very top of the S&P 500 market-cap ranking to gain 100% is another thing altogether." 

Will the momentum continue in 2024? That's the trillion-dollar question. The shares of Apple and Amazon have recently trailed the broad market; Tesla stock has dropped 30% in price over the past six months (it's now the eighth-largest company in the S&P 500, behind Berkshire Hathaway). Regulatory scrutiny and risk abound with many of the Seven, and there's no getting around the fact that they are richly priced. 

Nevertheless, the Magnificent Seven are magnificent for a reason. They dominate their industries, make products that are in high demand, boast strong balance sheets, and generate piles of cash. And each firm is a key player in its own way in generative artificial intelligence, a new technology paradigm that experts say will power future revenues and earnings growth across multiple industries for years to come. 

In this story, we'll take a closer look at the growth prospects and potential risks for the Magnificent Seven, collectively and individually, to help you decide how they might fit in your portfolio – or not. 

The power of AI 

There are many modes of generative AI, but generally speaking, it's the ability of sophisticated computers to process mounds of data, images, and even written and spoken language and then use that information to create original text, images, computer code or other content. The market potential, say many analysts, is huge. AI will improve economic productivity as it speeds up innovation and as it helps workers become more efficient, a May 2023 Brookings Institution report said. 

What's more, the implementation and economic impact of AI may occur faster than innovations in the past because AI is software-based and can be rolled out quickly on the internet. "The world is changing at an increasing pace thanks to AI," says Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. "It has never been faster." 

ChatGPT, developed by Microsoft partner OpenAI, hit 100 million users within two months of its launch, the fastest-growing user base of any app on record, according to multiple reports. Instagram took two years to hit that mark.

All of the Magnificent Seven companies boast traits that give them a powerful edge in generative AI. Data fuels AI, and these companies have that in abundance, says Dom Rizzo, manager of T. Rowe Price Global Technology fund, thanks to the loyal mass of consumers each company counts as customers. 

Microsoft dominates computing; Amazon, e-commerce; Alphabet, web searches – you get the idea. What's more, each company has a strong vision for the future and the cash and talent to make it happen, or at least give it a good try.

Does price matter if they're mag­nificent? After doubling in price, on average, the Mag Seven trade at an average 34 times expected earnings for the year ahead. That exceeds the price-to-earnings (P/E) ratio of the S&P 500, which trades at 20 times expected earnings. The lofty P/E has some strategists saying the group has run out of steam. Other strategists are comparing the rise in these elite shares to the sky-high dot-com stocks of the 1990s and the Nifty Fifty of the 1960s.

But earnings growth may justify some of the pricier valuations of these leaders. Analysts expect the group to average a 29% growth rate in profits over the year ahead, according to Zacks Investment Research – more than double the 14% earnings-growth forecast for the S&P 500. 

"Mag Seven valuations are rich, but not stretched," says Martin Romo, Capital Group's chairman and chief investment officer. "I'm not saying they're all buys, but you can't ignore them." 

There's likely room for more gains in each of the stocks, especially over the long term. "We're still in the early innings of AI, and these companies are well positioned going forward," says U.S. Bank's Sandven. 

Just don't expect the average share price for the Magnificent Seven to double again this year. "Nothing is impossible, but the chance that the same group has runaway performance in 2023 is pretty slim," says Liz Young, SoFi's head of investment strategy. 

A reality check on the Mag 7 

Chances are you already own some or all of the Mag Seven, either as individual stocks or in a fund. Even if you don't, they're worth watching. Together they make up 28% of the S&P 500's market capitalization, and that packs a punch. 

The group is "single-handedly driving earnings growth for the broad market right now," says Jeff Buchbinder, chief equity strategist of LPL Financial. 

Whatever your strategy is with these high-flying stocks, be prepared for a lot of choppiness along the way. Sandven advises investors to consider balancing investments in this singular group with exposure to sectors that underperformed in 2023, such as utilities, real estate investment trusts (REITs), healthcare and financials. View any dips in a Magnificent Seven's share price – around 10%, say – as a good potential entry point.

And be patient. Even a fast-moving, transformative theme like AI can take two to five years to play out, says SoFi's Young. Today's key players could be minor ones tomorrow, for instance. It's not unusual for "the company that no one expected to be the darling of a theme to land on top," she adds. 

Read on for more on each of the Magnificent Seven stocks. (All returns are through January 31, unless otherwise noted.)

Alphabet

There's no Alphabet without Google. The search engine, which accounts for 55% to 60% of the company's total revenue, handles 90% of all internet queries worldwide. But growth in ad revenue is slowing, at least according to the firm's recent quarterly results. For now, that has overshadowed strong growth in Alphabet's other businesses, including Google Cloud and YouTube – each of which account for about 10% to 12% of revenue.

Meanwhile, the company has been investing heavily in AI – almost $150 billion in just five years – to improve the experience for users and customers when they interact with its products. Google Translate, for instance, now works for 133 languages. Google's multisearch allows people to search with images and text at the same time – in 70 languages. Google Lens allows you to take a photo of a tomato plant in front of you and add "care instructions" to learn how best to nurture it. Even Google Maps uses AI in various ways, including to map remote and rural areas.  

Any upside to the company's Cloud computing business and its AI initiatives would be a positive for Alphabet shareholders. But growth in Google Cloud slowed in the most recent quarter compared with a year earlier, catching some analysts by surprise. And turning AI-driven products, like a chatbot (a computer program that simulates human conversation, answers queries and performs some routine tasks, like ChatGPT), into money-making machines could be a challenge. The other problem: A more AI-enabled world could squelch some of Alphabet's search business, as people start to find other ways to gather information. 

Finally, regulatory risks loom, too, and with them, rising legal costs. The U.S. Department of Justice, various states and other plaintiffs have filed several antitrust lawsuits against Alphabet that target various aspects of its business, including its search engine. Alphabet recognized $600 million in legal fees in the recent quarter, notes Mizuho Securities USA analyst James Lee.

All of the uncertainty, however, means Alphabet stock is downright cheap compared with some of its magnificent peers. At $140 – about $5 below its 2022 peak – it trades at 21 times expected earnings. Jefferies analyst Brent Thill rates the stock a Buy, with a 12-month price target of $175. Shares can "grind higher" despite a 58% gain in 2023, he says, thanks in part to accelerating growth in Cloud sales and strength in search. The upcoming naming of a new chief financial officer could be a catalyst, too. 

Amazon.com

The Magnificent Seven stocks haven't always been on top. They took such a beating in 2022 that some of them are still recovering to their pre-2022 peak levels, despite monster gains in 2023. Amazon.com is one of them (Alphabet and Tesla are the others). Though Amazon shares have climbed 76% cumulatively since the start of 2023, they still trade 9% below their previous peak in 2022. 

Does that make stock in this e-commerce/cloud services giant a good deal today? Yes, relative to its historical trading range. Shares trade at a P/E of 43 – well below average and close to their low over the past 10 years. Meanwhile, earnings growth is robust. Analysts project the company will post a 35% jump in 2024 earnings compared with 2023, and nearly 30% in 2025. 

But there are reasons to feel cautious, too. Although the company has, at long last, turned into a highly profitable, cash-generating machine, near-term drivers of growth are, well, meh. 

The company is digging into some new business areas – healthcare, for instance – but its short-term fortunes hinge on how much consumers are spending online, accelerated growth of its Amazon Web Services cloud computing business, or on cost-saving initiatives. And Amazon faces regulatory issues of its own, including a number of Federal Trade Commission lawsuits. One filed in September alleges that Amazon employed unfair, anticompetitive strategies to stifle competition.

Apple

For years, Apple set the pace, launching new technology and devices that quickly became must-have tools. But that innovation appears to have hit a holding pattern for now, and customers are waiting longer to upgrade their devices to the latest iteration. 

A few Wall Street analysts, including Tim Long, of Barclays, are cool on the stock. Long reduced his price target to $158 in early January, which is below the stock's recent price of $184, citing lackluster sales for the iPhone 15 and soft expected demand for the iPhone 16, which will launch later this year. Expectations for slowing growth in Apple's services business segment – including subscription fees for Apple TV+, Apple Music and iCloud – was another negative. 

But Apple's ecosystem, which encompasses 2.2 billion actively used devices the world over, is nothing to sniff at. And some analysts say the company's AI potential is consistently underestimated. Siri, for instance, has big potential. "She can book your Uber, order your dinner and make a hotel reservation after you buy an airline ticket," says T. Rowe Price's Rizzo. "That's a powerful world for Apple, and it potentially leads to a hardware upgrade cycle," in which customers will clamor for the latest iPhone in order to make full use of AI-enabled services. 

For the quarter that ended in December, Apple reported record earnings per share, despite disappointing sales in China. The report dimmed analysts' expectations for the upcoming quarter, but average annual earnings growth over the next three years is expected to be a healthy 13%. And Apple throws off more cash than any other Mag Seven peer – $99 billion at last report. 

The stock trades at a more reasonable P/E – 28 – than do some of the other six stocks. And Apple has been one of the less volatile, too. Morgan Stanley's Erik Woodring, who rates the stock Overweight, or the equivalent of Buy, says he would be a buyer on any weakness in share prices.  

Meta Platforms

Meta is known for its social-networking apps – Facebook, Instagram, WhatsApp and Messenger. But the firm's true assets are its 3.14 billion daily users. Their clicks in Meta's apps are gold for generative AI. 

Generative AI is already working behind the scenes. AI algorithms make predictions on what kinds of posts and ads you might want to see on Instagram Reels, based on what you're watching, clicking on and liking. Users can turn selfies into watercolor portraits with an AI-powered image-editing tool or consult Meta AI, the chatbot personal assistant, to plan their next meal out. But the firm is working to find other ways generative AI can improve app experiences in search, ads, messaging and more. 

Shares soared more than 160% over the past 12 months ending January 31. Days later, shares leaped anew after Meta announced solid quarterly results and its first-ever quarterly dividend of 50 cents per share. Despite the strong share gains, on a P/E basis, the shares are still among the cheapest of the Magnificent Seven. Analysts on average see earnings growth approaching 30% year-over-year in 2024. 

Meta went on a spending "diet" last year, laying off 13% of its workforce and cutting $3 billion in operating costs, says market strategist Ed Yardeni, of Yardeni Research. That, and a rebound in digital ad spending, helped boost earnings. Advertising accounts for 95% of the company's revenue.

That said, the firm's key risk is a decline in digital ad spending. Many analysts, including Robert W. Baird's Colin Sebastian, expect a pickup in ad spending this year, with the largest portion of advertisers planning to increase budgets on social media, followed by video and search. But some, including Wells Fargo Securities' Ken Gawrelski, predict a spending slowdown in 2024. And regulatory scrutiny is a worry; Meta faces a litany of legal issues in the U.S. and Europe. 

Microsoft

It may be the oldest of the Magnificent Seven, at nearly 50, but Microsoft is more consequential than ever. At $2.9 trillion in market value, it's the biggest company in the world – yet it still raked in a record $22 billion in sales in its last fiscal year, which ended in June. More than a billion people around the world use Office, its collection of desktop apps. 

More important, Microsoft has nimbly adapted to multiple tech paradigm shifts over the years, from the PC to the internet, the cloud, and now AI. Indeed, 32 out of 43 stock analysts who cover the Dow Jones stock rate the shares a Strong Buy in part because the company has its fingers in so many AI pots. Copilot, the company's chatbot, is embedded in all of the company's popular products – for an extra monthly fee, of course.

Microsoft's AI prowess is helping companies and organizations in practical ways. Taiwan's Ministry of Education has built an online platform to help elementary and high school students learn English using Microsoft's cloud-based AI platform, Azure AI. Developers at the Argentinian financial technology company Mercado Libre (MELI) have shaved 50% off the time they spend writing code by using Microsoft's GitHub Copilot. And Mercedes-Benz (MBGAF) is making its in-car voice assistant more intuitive for drivers by using ChatGPT. 

Truist Securities analyst Joel Fishbein sees 2024 as a "pivotal year in the market for generative AI spending" and says Microsoft is the leading generative-AI-enabling provider. Fishbein expects roughly 14% growth in Microsoft's revenues and 15% to 16% growth in earnings over the next three years. At a recent price of $398, shares trade at 36 times expected earnings. That's rich, but not extreme compared with its historical median P/E of 31 over the past five years, according to Zacks Investment Research. Even so, the stock's valuation leaves little room for missteps. 

Nvidia

Nvidia's semiconductor chips are in high demand these days because they can crunch massive amounts of data, the fuel for artificial intelligence programs. Sales are set to double in 2024, year-over-year. And analysts expect earnings per share to jump fourfold from the previous year – to $12 in 2024 – and to $20 in 2025. "I don't think we've ever seen earnings growth of this size, scale and scope before," says T. Rowe Price's Rizzo. "It's crazy."

It's the reason the stock has climbed 277% cumulatively since the start of 2023. Shares currently trade at a P/E of 30 based on a consensus of analysts' earnings forecasts for its next fiscal year, which ends in January 2025. 

Smart investors will look for dips in price to buy, then buckle up for the ride. Nvidia shares have been twice as volatile as the broad market and the Nasdaq Composite index over the past three years. Of course, that volatility measure – standard deviation – is as much about the stock's big moves up as it is about the stock's downward shifts.

Nvidia faces some near-term risks, however. The company's original bread-and-butter business, gaming chips, is slowing. There's a chance that AI-chip demand could slow, too. And competition from other AI chipmakers, such as Advanced Micro Devices (AMD) and Broadcom (AVGO), is ramping up. Plus, the U.S. is limiting the types of chips that companies can sell to China, which may pose problems for Nvidia, as China sales account for 20% to 25% of overall revenues. 

Tesla

Shares in this automaker – the biggest electric-vehicle manufacturer in the U.S. (but not the world) – have declined 30% over the past six months, which has us wondering whether its days as a member of the magnificent club are dwindling. 

The automaker missed analysts' expectations for revenues and earnings in each of the past two quarters – a big no-no for fast-growing stocks. Tesla cut prices on some of its electric vehicles last year in an effort to drive up sales, and that pinched operating profit margins. And there have been a spate of recalls.  

But the pace of auto sales, accounting for 95% of Tesla's business, is the biggest problem—not just at the company, but worldwide. In 2023, the firm's auto revenues rose 15%, far short of the 50% pace logged in 2021 and 2022. EV demand is "stalling" globally, says Wedbush Securities analyst Daniel Ives, and a glut of EV parts is hitting the market. Though Ives believes most of Tesla's price cuts are done, the company may feel pressure this year to cut prices further. If so, Tesla shares may find it hard to "shed this black cloud in the near term," he says. Even so, the stock still trades at a P/E of 57, a nosebleed level relative to analysts' expectations for earnings growth. 

Tesla has other long-term bets that could propel growth in the future, including energy generation and storage. And it has the AI edge in self-driving cars, thanks to the data compiled by its own EVs. But even analysts who are bullish on Tesla admit that 2024 will be challenging. We wouldn't unload shares, but you might wait for more dips if you're thinking about buying. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

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To help you understand how AI and other new technology are affecting energy consumption, trends in this space and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts. (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The rise of AI is pushing tech giants to find new ways to curb energy use. Firms like Alphabet and Microsoft have always strived for energy efficiency, but AI chips are extra power-hungry and will be unsustainable without big changes.

Cue new tools that help users reduce energy usage. Tools being developed by researchers at the Massachusetts Institute of Technology (MIT) lower power needs with simple techniques, such as capping the amount of energy used by hardware.

The researchers have found that such tweaks don’t hinder the AI’s performance. Another idea is optimizing the mix of AI chips with traditional ones for efficiency. Though it could take a while, expect more energy transparency around AI. Users will eventually get an energy report along with their answers from ChatGPT, which signals a trend of large-scale AI. 

According to an article by Scientific American, a continuation of the current trends in AI capacity and adoption is set to lead to NVIDIA, a leader in AI computing, shipping 1.5 million AI server units per year by 2027. These 1.5 million servers, running at full capacity, would consume at least 85.4 terawatt-hours of electricity annually — more than what many small countries use in a year.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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There are many ways to measure stability on Wall Street. For you and me and other individual investors, it's a basic question of identifying the best cash cows to buy.

Some market participants prioritize metrics such as the value of a company vs its underlying assets to make sure they're not overpaying for shares. Others seek steady operating cash flow; money comes in steadily and substantially, fueling growth and sustaining a solid business footing.

But value stocks can sometimes be value traps. Cheap stocks are often cheap for good reasons. Often, they do get cheaper. At the end of the day, there really is only one measure of how stable a stock is: cold, hard cash on the balance sheet.

That's the best indicator of a high-quality business, and it's also a sign of a solid stock to buy for the long term.

High-quality cash cows

"The global economy is poised to accelerate in 2026," write UBS Global Research strategists in their 2026-27 markets outlook. "Business and consumer confidence has improved, the global credit impulse has turned positive, and we expect several major advanced economies to benefit from additional fiscal stimulus."

UBS does see "a soft patch" as tariffs feed through to prices and exports, though they believe "high-quality stocks should outperform." And their forecast didn't contemplate war in the Middle East.

Still, the following cash cows have resources that equip them to weather a downturn and to grow their businesses amid inevitable uncertainty about the macroeconomic landscape.

• Sector: Financials
• Market value: $1.1 trillion
• Cash on hand: $397.4 billion

Berkshire Hathaway (BRK.B) is closely watched by many investors for many different reasons. Warren Buffett and his shareholder letters are famous for their down-to-earth market wisdom. The first letter from new CEO Greg Abel, who replaced Buffett in January, promises the same investing playbook, with perhaps a little less folksy flair.

The firm's reputation for shrewd investment means its filings are closely watched as an indicator of what stocks the smart money is watching.

Lately, however, BRK.B has been attracting interest because of how much money it has on the sidelines. At the end of Abel's first quarter as CEO, the company boasted $397.4 billion in cash and short-term investments to set a company record. A recent build-up in Berkshire's cash reserves reflects Buffett's experience as well as Abel's current perspective.

During the 2008 global financial crisis, the company made tremendous use of its stockpile through shrewd and well-timed transactions. At the same time, with volatility and uncertainty spiking, Buffett, Abel and Berkshire may simply not want to risk making a bad move.

Either way, the strong balance sheet makes BRK.B a pretty darn reliable cash cow for the foreseeable future.

• Sector: Consumer discretionary
• Market value: $2.6 trillion
• Cash on hand: $146.0 billion

A dealmaker of a different kind, Amazon.com (AMZN) boasted $146 billion in cash on hand at the end of the first quarter to make it another cash cow worth watching.

The company has a history of bold additions to build out new arms of its business, from paying roughly $1 billion for streaming platform Twitch in 2014 to acquiring grocer Whole Foods for about $14 billion in 2017. In 2022, it snapped up entertainment icon MGM for almost $9 billion.

Management announced a $4 billion investment in AI platform Anthropic in 2023, a deal that seems like only a steppingstone to the $50 billion deal with Open AI signed in February. Indeed, Amazon.com said it will spend $200 billion on AI in 2026.

At the same time, the company's net income continues to grow — as does its impressive cash stockpile.

Regardless, AMZN is a cash cow with plenty of dry powder to make deals — or weather any short-term turbulence in consumer spending.

• Sector: Communication services
• Market value: $4.4 trillion
• Cash on hand: $126.8 billion

Another Big Tech darling, Google parent Alphabet (GOOGL) had $126.8 billion on hand at the end of Q1, up significantly from $95.3 billion a year ago.

That's despite a significant increase in infrastructure capex related to building out AI functionality. Indeed, GOOGL is not afraid to spend. Alphabet is on track to close its $32 billion acquisition of cloud security platform Wiz, and management plans to more than double its capex budget in 2026 to $185 billion from $91 billion in 2025.

Tremendous operational consistency and unrivaled scale make GOOGL one of the most reliable Silicon Valley stocks out there. And it still has tens of billions in dry powder.

This is another cash cow with more than enough resources to weather any short-term disruptions and/or make additional deals in the months ahead.

• Sector: Communication services
• Market value: $1.5 trillion
• Cash on hand: $81.5 billion

The parent of Facebook and Instagram, among other properties, Meta Platforms (META) is a lean and tech-savvy communication services stock with deep pockets and a history of aggressive growth via big-ticket deals.

Examples of Meta's expansive ambitions include the $19 billion takeover of messaging platform WhatsApp in 2014 and the $1 billion acquisition of Instagram in 2012.

Deal place slowed some as Meta faced antitrust scrutiny for its digital media platforms. In November, a judge ruled Meta does not have a monopoly in the social networking space.

Last year, Meta spent $10 billion for a massive AI data center in northeast Louisiana that's powered by dedicated natural gas facilities. And it's announced massive AI spending plans.

And, because CEO Mark Zuckerberg is running a profitable company without any major purchases to pay for, META can spend $135 billion in 2026 on data centers, chips and AI tools.

And its cash pile continues to grow. As of the end of the first quarter, the firm reported $81.5 billion in cash and equivalents.

The ability to invest heavily in infrastructure and still keep growing its bank account makes Meta a cash cow to watch.

• Sector: Technology
• Market value: $3.1 trillion
• Cash on hand: $78.3 billion

Rounding out the list of cash cows is tech leader Microsoft (MSFT), which has long been a leader in corporate America for its bulletproof balance sheet. It's one of just two companies in the U.S. that has a tip-top AAA credit rating from Standard & Poor's. (Fellow Dow Jones stock Johnson & Johnson (JNJ) is the other.)

Microsoft has a slightly smaller stack of cash than these other stocks, but Wall Street sees it as even more creditworthy.

It also pays mammoth dividends to shareholders of about $27 billion annually. That's cash it can fall back on if things ever get tight.

Its massive war chest has survived a bank-busting merger with software giant Activision Blizzard, which closed in 2023 at a value of more than $68 billion.

Microsoft's software-as-a-service revenue model, coupled with a world-class portfolio of business tools, makes for reliable cash flow to ensure it will continue to have deep pockets for many years to come.

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Tech stocks led the way higher Monday as investors prepared for a heavy batch of corporate earnings reports due out this week. 

Roughly 20% of S&P 500 companies will release their quarterly results over the next five days, with tech giant Microsoft (MSFT, +1.0%) and electric vehicle maker Tesla (TSLA, +7.7%) among the notable names on this week's earnings calendar. But, the focus was on a big layoff announcement from audio streaming service Spotify (SPOT, +2.1%). 

Today, Spotify said it will lay off 6% of its global workforce, or around 600 employees. In a memo sent to staff, CEO Daniel Ek said the job cuts were an effort to bring costs in line amid a challenging economic environment. This follows in the footsteps of several other tech and communication services companies like Microsoft, Meta Platforms (META, +2.8%) and Alphabet (GOOGL, +1.8%) that recently announced layoffs.

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Salesforce (CRM, +3.1%) was another big gainer today after a report in The Wall Street Journal indicated Elliott Management has taken a "big stake" in the software-as-a-service (SaaS) company. 

Semiconductor stocks were also a pocket of strength. Advanced Micro Devices (AMD, +9.2%) outpaced its peers after Barclays analyst Blayne Curtis upgraded the stock to Overweight from Equal Weight, the equivalents of Buy and Hold, respectively. Curtis said AMD's Genoa and Bergamo platforms will likely take market share away from Intel (INTC, +3.6%), and believes the company could get a boost once Facebook parent Meta Platforms ramps up spending later this year. 

As for the major indexes, the tech-heavy Nasdaq jumped 2.0% to 11,364, the broader S&P 500 gained 1.2% to 4,019, and the blue-chip Dow Jones Industrial Average rose 0.8% to 33,629.

The Safest Vanguard Funds to Buy

Today's price action likely sparked a sigh of relief among investors. However, the fact remains that the major benchmarks are still in a bear market. And amid expectations that the U.S. will enter a recession later this year – Kiplinger, for its part, has the odds of a recession at about 60% – stocks could stay in a downtrend for the time being. 

While it's true that this bear market will eventually end, "investors should not assume that the easy times in the market are coming back," says David Bahnsen, chief investment officer at wealth management firm The Bahnsen Group. "We expect enhanced volatility and a focus on cash flow and quality for the foreseeable future." 

As such, Bahnsen says it is "very important to pursue high-quality assets," like the best dividend stocks. Other defensive strategies included targeting stocks in the healthcare and consumer staples sectors. Investors that want more diversification in their portfolio hedges have plenty of options among the best bear market ETFs. But for those looking for below-average expenses, consider the safest Vanguard funds to own in a bear market. The names featured by Vanguard offer short-term defense across a variety of strategies and come with the investment advisor's low costs to boot.

It has been a rough year for the stock market but even more so for mega-cap tech stocks. From the start of 2022 through early August, the four largest technology companies lost an average of 14% of their value, including dividends, compared with a decline of 12% for the benchmark S&P 500 Index. (Prices, returns and other data are as of Aug. 5 unless otherwise noted.)

The four biggest tech firms also happen to be the biggest U.S. companies of any kind, as measured by market capitalization (price times shares outstanding). In order of size, the Mega Four are Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL) and Amazon.com (AMZN). Over the past five years, their share prices have more than tripled, and each has a market cap of more than a trillion dollars. But investors are bewitched by what behavioral economists call "recency bias," or putting too much emphasis on the latest events, so losses over the previous few months are prominent in investing decisions.

Smart investors take a long view, both forward and backward. They look carefully at a company's progress over the years and then try to forecast a decade out. With this kind of analysis, the 2022 decline is clearly a buying opportunity for three reasons:

Adaptability. Each of the Mega Four started with a single big idea: search-based advertising for Google, personal computing for Apple, online shopping for Amazon and operating-system software for Microsoft. None has abandoned its original business, but all have moved into other sectors. Those transitions have been impressive and nearly unique among corporations. The flexibility that the Mega Four have displayed bodes well for future adaptation to changing markets.

For example, every one of the four is a leader in the supremely profitable business of cloud computing, which lets users store massive amounts of data remotely and securely, accessible anywhere in the world. Three-fourths of Amazon's profits last year came from its cloud-computing unit. For the quarter ending June 30, Microsoft's Intelligent Cloud revenue represented 39% of total sales for the company; Alphabet's cloud revenues jumped 35% in the same quarter.

Even Apple, a manufacturing company, understands the value of cloud computing. Revenues from the company's services division, which in addition to the cloud includes Apple TV+, Apple Music, the Apple Card and the App Store, are growing three times as fast as iPhone sales. Forbes predicts profits from services will reach $50 billion a year, surpassing the profits from iPhone sales, by 2025.

All the companies are using a subscription model, the best example being Amazon Prime, to guarantee a flow of cash. In addition, both Apple and Amazon have made major investments in video production and streaming.

Alphabet's YouTube, even though it is blocked in China, has become a huge global advertising vehicle, with 2.6 billion users. Meanwhile, Microsoft is one of the three largest gaming companies in the world. Alphabet's Google owns Nest thermostats and Verily Life Sciences. Amazon owns the Whole Foods Market chain, with $17 billion in revenues. Alphabet's Gmail service is the largest in the world, accounting for 37% of all email openings last year.

Not all the tech companies' investments (or "other bets," as Alphabet officially calls them) have paid off – Google Fiber, bringing super-high-speed internet connections to about a dozen cities, has been disappointing, for one – but the Mega Four have remarkable acquisition track records and plenty of cash to buy more businesses. Among the three of them, Microsoft, Apple and Alphabet collectively have a total of nearly $300 billion in cash and short-term investments on their balance sheets.

Congress and regulators, of course, may stand in the way of further growth by acquisition. But the big tech companies have also grown organically, with such great businesses as Amazon Web Services, the largest cloud-services organization in the world, generated within their own organizations.

Profitability. The reason the Mega Four have so much cash is that they are absurdly profitable. Take return on equity, which is net income divided by shareholders' equity (a firm's net worth, or what would get turned over to the stockholders if a company were liquidated). According to a Nasdaq primer, return on equity "enables investors to identify companies that diligently deploy cash for higher returns." Apple's current return on equity is 153%. In other words, raising $1 million in equity produces profits of $1.53 million! For comparison, Zack's, an investment research firm, reports that the average for the mini-computer sector is 19%.

A cruder profit measurement is operating margin, or return on sales – that is, profits divided by revenues. For all U.S. industries, the average figure is about 11%, but Microsoft's is nearly 40% over the past 12 months, and Alphabet's is about 30%. Amazon is mainly a retailer, so its margins are lower, but its cloud business has an operating margin of about 30%. There's no need to get bogged down in statistics. It's sufficient to say that these companies are profit machines, even when the economy appears to be slowing down as the Federal Reserve raises interest rates to thwart inflation.

Valuation. Now I get to the best part of the Mega Four story: These stocks are cheap. I can't predict whether they'll get cheaper in the short run, but it's clear that becoming partners in some of the best businesses in the world is a better deal today than it was at the start of the year.

Alphabet, whose shares have dropped from $148 earlier this year to $117, now carries a forward price-to-earnings (P/E) ratio, based on a consensus of analysts' earnings forecasts for the next 12 months, of 22, and Apple's is 27. Despite a recent bounce, Amazon is considerably less expensive than it was two years ago, and Microsoft has lost $59 a share since it traded at $342 in November 2021.

The company that used to be the fifth-largest U.S. stock and now ranks 11th, Meta Platforms (META), the former Facebook, provides a striking contrast to the Mega Four. Some 97% of Meta's total revenue comes from advertising sales, which fell in the most recent quarter because of vulnerability to trends in the overall global economy and increased competition. Meta is trying to make its own shift, "moving beyond 2D screens toward immersive experiences like augmented and virtual reality to help build the next evolution in social technology," as its latest earnings report says.

Can Meta's management lead this kind of massive, risky transition? That's uncertain, but when it comes to valuation, Meta is hard to resist. The stock has plunged 50% this year, and its P/E is currently a mere 18. Meta and Johnson & Johnson (JNJ) have the same market cap, but Meta earned about 40% more in the most recent quarter.

Of all the ideas that created America's biggest tech companies, Facebook's was the most simple and revolutionary. It completely changed the way we connect with other people and upended the advertising world. Today, one out of every six ad dollars in the world is spent on Facebook – twice as much as on Google.

The main case for the Mega Four – or Five – is their success. I realize that the market battlefield is littered with giant winners that have become losers, General Electric (GE) being the prime example. There are no guarantees in investing. But when the market sours on companies because of the state of the economy, it's a good time to be buying the best.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. Of the stocks mentioned here, he owns Microsoft and Amazon.com. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. You can reach him at James_Glassman@kiplinger.com.

The busiest week of second-quarter earnings season is upon us. Wall Street will be privy to results from some of the biggest names in technology, with Apple (AAPL, $155.35), Amazon.com (AMZN, $124.63), Alphabet (GOOGL, $114.34), Meta Platforms (META, $183.17) and Microsoft (MSFT, $264.84) among those on this week's earnings calendar.

"With the major U.S. tech names set to start reporting, traders will be poised to see how margins are holding up in the previous stock-market darlings, and hoping they paint a prettier picture than the underperformance from U.S. banks," says Sophie Lund-Yates, equity analyst at U.K.-based financial firm Hargreaves Lansdown.

Apple Margins Expected to Stay High

CFRA Research analyst Angelo Zino (Buy) expects Apple to report gross margins between 42% and 43% when it unveils its fiscal third-quarter results after the July 28 close.

"AAPL's gross margins remain elevated, benefiting from the ongoing shift towards services and better mix within products," says Zino. "Positive tailwinds ahead will include more favorable selling prices and mix towards services while unfavorable forex is expected to act as a headwind over the next several quarters."

Overall, analysts, on average, expect AAPL to report earnings per share (EPS) of $1.16, down 10.8% year-over-year (YoY), and revenue of $82.6 billion (+1.5% YoY).

Analyst: Amazon Remains a Top FANG Stock

Amazon.com will release its second-quarter earnings report after Thursday's close. Consensus estimates are for AMZN to unveil earnings of 15 cents per share (-80% YoY) and revenue of $119.1 billion, up 3.4% over the year-ago period.

BofA Global Research analyst Justin Post (Buy) recently lowered his Q2 revenue outlook for AMZN amid forex headwinds. "Key topics for the quarter will likely be inflation impact on the consumer spend, retail gross margins given Target's (TGT) second-quarter guidance update, still elevated gas prices and labor cost impact on operating costs and forex pressure," Post says.

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But while "inflation and recession risk clouds the near-term revenue and margin trajectory," Amazon remains Post's top pick among FANG stocks. Indeed, following its roughly 25% year-to-date decline, AMZN stock is one of the best deals around.

Alphabet Faces Tough Comps in Q2

Alphabet enjoys a Buy rating from CFRA Research analyst Angelo Zino due to its "valuation versus large-cap tech peers, free cash flow potential and [the] belief that GOOGL can sustain a 10%-plus long-term EPS growth pace." However, Zino admits that there are risks ahead, including currency headwinds and regulatory issues.

Another potential drawback for GOOGL in Q2 are tough year-over-year comparisons. The company saw Google search revenue jump 63% YoY in Q2 2021, while YouTube ad revenue was up 83%. This time around, Zino expects those figures to come in closer to 10% and in the high-teens percentage, respectively.

GOOGL will report its second-quarter results after Tuesday's close. Analysts, on average, see Alphabet's total revenue growth moderating to just 13.1% YoY to $70.0 billion, while earnings are expected to decline 4.4% to $1.30 per share.

Meta Earnings Will Be "Better Than Feared," Say Analysts

Meta Platforms reports its second-quarter earnings after Wednesday's close. Fellow social media stock Snap (SNAP) reported dismal results on July 21, missing on both the top and bottom lines and saying it will "substantially slow our rate of hiring, as well as the rate of operating expense growth" amid a challenging macroenvironment.

SNAP stock sold off sharply as a result, raising the question: Does the same fate await META shares?

Deutsche Bank analysts Benjamin Black and Lee Horowitz (Buy) believe the Facebook parent will post Q2 results that will be "better than feared." True, macro headwinds and engagement trends driven by the rise of TikTok have sparked concerns, but "our intra-quarter checks point to slightly more benign challenges. As such, we think an outcome better than feared should suffice to support shares, particularly with the company signaling perhaps even more cost discipline over the next 6-12 months," the two say.

Analysts' consensus estimates are for Meta Platforms to report second-quarter earnings of $2.61 per share (-38.3% YoY) and revenue of $29.0 billion (+3.9% YoY).

Microsoft Expected to Post Modest Growth in Q2

Microsoft is one of a number of Dow Jones stocks making an appearance on this week's earnings calendar, with the tech giant slated to unveil its fiscal fourth-quarter results after Tuesday's close.

Analysts, on average, believe MSFT will report earnings of $2.30 per share (+6.0% YoY) and revenue of $52.5 billion (+13.7% YoY) for the three-month period.

Morgan Stanley analyst Keith Weiss admits that multiple crosscurrents could impact Microsoft's results, including declining PC shipments, forex headwinds and easing consumer demand. However, thanks to strong feedback on the resiliency of MSFT's consumer business and data gathered from a recent management survey, Weiss has confidence the company can sustain its growth going forward. The analyst has an Outperform rating on MSFT, which is the equivalent of a Buy.

Karee Venema was long AAPL, AMZN and GOOGL as of this writing.

Employers are trying their best to keep their best talent. And, as more top executives and senior-level managers re-evaluate their careers after two years working from home, companies are trying to find new ways to entice them to stay.

While stock options, restricted stock and other deferred compensation plans have long been part of talent-retention plans, recent news reports say that more companies are instead offering cash bonuses. According to these reports, Alphabet, owner of Google, adopted a new cash bonus plan in October 2021 that lets the company give employees bonuses of nearly any size for nearly any reason. Amazon said in February it doubled its cash-pay cap for employees.

But with more money hitting bank accounts, it’s tempting for an executive making a healthy six-figure income to make an expensive purchase that eats up a large chunk of this cash. It’s even more likely for people to begin to stray from their budgets and spend more money. Lifestyle “creep” takes hold; with more money to spend, it’s too easy to be less disciplined. Then, when high inflation hits, a recession occurs, or their company downsizes them, it’s hard for people to pare back when times get lean.

A few years ago, one of my clients, a corporate executive, used a bonus to install a $75,000 swimming pool in her backyard. It may have seemed like a reward for a job well done, but the pool put a major dent in her goal to build her savings for her three children’s college education, which was right around the corner.

Whether it’s a big cash bonus or stock options and restricted stock grants, “What Matters Most” is a phrase I use to guide my clients. With that as background, here are some of the best ways to invest cash bonuses:

Increase Your Pre-Tax and After-Tax 401(k) Contributions

Retirement savers with a 401(k) can contribute up to $20,500 in 2022. Those savers ages 50 and older can make an annual catch-up contribution up to $6,500 in 2022 (no change from 2021), for a total contribution of $27,000. If you weren’t already doing this, now is the time.

Set Up Automatic Monthly Deposits in Key Accounts

Saving money for a child or grandchild’s college education has never been easier. Regular deposits to a 529 college savings plan will add up over the years, and in about 30 states, individuals and married couples may be able to deduct part of their 529 contributions from their state income tax return.

A 30-year-old saving for their retirement may need to save half as much money over their career compared with someone who starts saving when they are 40 years old, assuming similar market returns on their portfolios.

Pay Down Your Debt

With extra money in hand, now could be a good time to make extra monthly principal payments on your mortgage, credit cards or other consumer debt.

One of my clients is doing just this – after earning her big promotion last year she immediately took the extra income from her monthly paychecks and sent it directly to the mortgage company. As a result, she’ll be able to get out of debt at least five years sooner.

When it comes to which payments to prioritize, I have an unconventional approach to getting out of debt. Most people say to pay off your highest interest rate debts first. I advise people to pay off the smallest balances first. That will help the mountain of debt feel like a small hill quickly, and it provides encouragement for people to keep working on their debt-reduction strategy if they have these small successes along the way.

Consider More Insurance

A higher income means you will likely need more life insurance to protect your family, especially if your lifestyle increases. Adding more disability insurance can make sense too. The higher your income, the more protection you may need if you suffer a serious illness or injury and can no longer work full-time, especially if you haven’t hit your financial retirement goals yet.

Look into Personal Excess Liability Insurance

Professionals and senior-level managers may also consider buying an excess liability policy. A high-profile job can increase the risk you are the target of a lawsuit; an excess liability policy — aka umbrella insurance — can help protect your family’s assets should there be a future personal judgment against you.

Two Additional Tips for Stock Compensation

For those executives who receive stock options and restricted stock grants, the good news is that the vesting period – often three to five years – means there is plenty of time to plan when to cash in these awards and how to invest the proceeds.

With stock prices having risen steadily over the past decade, these awards have been a windfall for many. But be careful not to let too much stock accumulate since its value will drop if the company stock price declines. The stock market’s overall pullback so far in 2022 has meant a double-digit percentage decrease in the stock prices of many companies.

Also, take time to understand how and when you can access these awards. As the vesting period draws near, determine the exact vesting date of your awards, how to access them, sell the shares and wire the money to your checking account. This can be a time-consuming process if you are not familiar with it, and it needs your attention to be properly executed.

Finally, for those considering retirement in the next few years, begin to use these options and grants to diversify your stock portfolio. Many executives have achieved their wealth largely from company stock concentration. But owning too much stock in one company could quickly bring down your net worth in retirement. Instead, a diversified plan that includes U.S. and foreign equities, bonds, real estate and insurance can be more effective than relying heavily on one company’s stock price.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Tesla (TSLA, $1,010.64) on Monday signaled its second stock split in less than two years and became the third company in the trillion-dollar market cap club to propose a split in the past couple of months. Shares in the electric vehicle maker predictably popped at the opening bell.

The company's notice of a Tesla stock split follows Amazon.com's (AMZN, $3,295.47) proposed 20-for-1 AMZN stock split announced earlier this month, as well as Google parent Alphabet's (GOOGL, $2,833.46) 20-for-1 GOOGL stock split disclosed in early February.

Tesla's announcement came in a regulatory filing that was light on details, but that didn't stop shares from adding well more than 6% in the first 15 minutes of trading.

Fair enough. The last time Tesla split its stock, TSLA shares gained more than 80% between the early August 2020 announcement and the day the 5-for-1 split went into effect at the end of that month:

If shares don't go quite as crazy this time around, that will be understandable. After all, TSLA actually said very little in its filing.

What (Little) Is Known About the Tesla Stock Split

Here's the deal: The company plans to request stockholder approval at its upcoming annual meeting "for an increase in the number of authorized shares of common stock … in order to enable a stock split of the Company's common stock in the form of a stock dividend."

That's it. The date of the annual meeting has yet to be disclosed, but in 2021 it was held in October, if that's of any help.

The almost certain outcome, however, is that the Tesla stock split will make shares more accessible to retail investors who currently balk at the four-figure sticker price. True, brokers are happy to sell their clients fractional shares for free, but a stock with a high dollar price is simply tougher for traders, investors and insiders to sling around.

Slicing the price of admission to any stock helps increase liquidity and volume. Those are not necessarily bad things. Just be aware that volatility will likely increase as a result, too.

The Last Split Triggered Buying. Will History Repeat?

The downside to stock splits is that a company's stock usually goes up even though nothing under the hood has changed. A stock split is essentially the same thing as making change: swapping, say, a $5 bill for five $1 bills. A company's fundamentals, its prospects and its shares' valuation remain the same.

That's why some strategists are telling investors they should take any pop from the Tesla stock split as a chance to get out while the getting is good.

"Tesla's desire to pursue a stock split doesn't change the fact that its stock is still trading at a valuation completely disconnected from fundamentals," says David Trainer, CEO of New Constructs, an investment research firm based in Nashville.

Trainer fears that by dramatically reducing its price post split, TSLA will become even more attractive to "unsuspecting" retail investors.

"This could further fuel the bubble in Tesla's stock that has been brewing over the past two years," he adds. "We advise investors to sell the rally in Tesla shares, as the stock faces no fundamental upside catalysts."

For context, here's how TSLA stock has fared against the S&P 500 over the past two years:

After a 900% run vs. just 86% for the border market over the past couple of years, Trainer isn't alone in his concerns. Wall Street gives TSLA stock a consensus recommendation of Hold, per S&P Global Market Intelligence. A number of less optimistic or even bearish analysts do cite valuation as a major worry.

Indeed, Tesla's stock trades at nearly 95 times analysts' fiscal 2022 earnings per share (EPS) estimate. True, the Street forecasts the company to generate average annual EPS growth of almost 40% over the next three to five years, but TSLA still commands a pretty hefty premium. That's especially true if you buy the bears' argument that an onslaught of electric vehicle industry competition isn't being adequately priced into TSLA shares.

Here's the pros' bottom line: Of the 35 analysts issuing opinions on Tesla stock surveyed by S&P Global Market Intelligence, 11 rate it at Strong Buy, six say Buy and nine call it a Hold. Notably, TSLA also gets six Sell recommendations and three Strong Sells.

Sell calls are remarkably rare on the Street, so make of that what you will.

Amazon.com (AMZN, $2,135.50) is set to execute a 20-for-1 stock split in early June.

The Amazon stock split, which just received the blessing of a majority of AMZN shareholders Wednesday night, will be the fourth in the company’s history, and it follows on the heels of Google parent Alphabet's (GOOGL) own 20-for-1 split announced in February.

And just as with Google's move, Amazon's stock split could open the door for its inclusion in the elite Dow Jones Industrial Average one day.

The Details on the Amazon Stock Split and Buybacks

Amazon, which originally announced the stock split March 9, will give each shareholder 19 additional shares for each share held (pending shareholder approval, of course) on June 3. The company said AMZN stock will begin trading on a post-split basis on June 6.

Based on current levels, shares would go for just under $107 apiece following the Amazon stock split. That should make AMZN shares more attractive to retail investors currently put off by the four-figure sticker price of more than $2,100.

"This split would give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest in the company," an Amazon spokesperson said.

Despite what the textbooks say, the market loves stock splits. And that continues to be true even in an age when brokers are happy to sell clients fractional shares for free.

After all, splits might give traders and investors more flexibility, but they have absolutely zero impact on a company's fundamentals, prospects or its shares' valuation. That's because a split is essentially the same thing as making change. In this case, shareholders will effectively be swapping a $20 bill in return for 20 $1 bills.

However, a $10 billion share repurchase program, also announced back in March, is another matter entirely. It replaces Amazon's previous $5 billion stock repurchase authorized in 2016. The company bought back $2.12 billion of its shares under that plan.

By reducing its share count, Amazon's remaining shares will have greater perceived value by dint of both their increased scarcity and greater claims on future cash flows.

Amazon to the Dow?

But perhaps the most interesting perceived benefit of the split is that Amazon could be tapped for the 30-stock Dow Jones Industrial Average one day. That's because the blue-chip barometer isn't built like the other two major indexes.

The S&P 500 and Nasdaq Composite determine their weights by market capitalization (stock price multiplied by number of shares outstanding.) But the Dow – created way back in 1896 – is weighted by the company’s stock price.

That price-weighted construction effectively shuts out companies with lofty share prices, such as AMZN. Indeed, at $2,100 a share, Amazon stock would skew the average into meaninglessness.

UnitedHealth Group (UNH), at roughly $500 a share, holds the greatest weight in the average today. Adding AMZN at $2,100 would turn the Dow into the “Amazon & Friends Average.”

That said, while the Amazon stock split might make Amazon a more realistic addition to the Dow, don’t consider its inclusion automatic. The Dow’s editors at S&P Dow Jones Indices are the ultimate arbiters of that decision – and it’s not a simple one to make.

Amazon is a member of the market's consumer discretionary sector. Home Depot (HD), McDonald's (MCD) and Nike (NKE) are already representatives of that sector in the blue-chip bastion.

Does one of those stocks get the boot? Amazon’s post-split price would be well below that of HD or MCD. Kicking one of those names out in favor of AMZN would lower the consumer discretionary sector's weight in the Dow. Is that a problem?

Furthermore, the editors construct the Dow to reflect the broader economy. The world's largest fast-food chain and nation's largest home improvement retailer represent aspects of the economy that would be diminished with their exclusion. Besides, brick-and-mortar retailers still matter, even amid the rise of e-commerce. Nike, meanwhile, is a massive global vendor in the apparel and footwear industry.

No, the editors aren't bound by some rule that requires them to swap stocks within sectors. They could add AMZN at the expense of some other sector, for sure. But sector weightings and overall construction of the average … these can be tricky things, and they're issues the editors would have to consider.

All that said, investors should also know that being tapped for Dow inclusion is largely symbolic. Some $13.5 trillion was indexed or benchmarked to the widely used S&P 500 as of earlier this year. That means passive funds tracking the S&P 500 must own all of its components, weighted by market value. Period. Many other sector and “smart beta” funds that track all or part of the index in some way also are forced to own some or all of the S&P 500’s components.

However, only $36.6 billion was indexed or benchmarked to the Dow. Mega-cap stock AMZN, by itself, is worth roughly 40 times all the money tracking and chasing the industrial average.

True, the blue-chip barometer can't be beat for brand familiarity. It might be fitting if Amazon joined the Dow. But that’s about it.

What we do know about the Amazon stock split is that it should bring in loads of retail investors. That, in turn, could light a small fire under shares, at least for a while. Just be aware that volume in Amazon stock would likely also increase – and so volatility very much could too.

Google parent Alphabet (GOOGL, $2,752.88) briefly added more than $180 billion in market value at the opening bell Wednesday after the search giant easily topped fourth-quarter estimates … and delivered on many investors' longtime wishes by announcing a 20-for-1 stock split.

An Alphabet stock split would not only make its A-class GOOGL shares and C-class GOOG shares more accessible to retail investors, but also perhaps open the door for inclusion into the elite Dow Jones Industrial Average one day.

Alphabet announced both the stock split and its quarterly results late Tuesday, resulting in a jump in GOOGL stock of as much as 10% in the first few minutes of Wednesday's session. That's the biggest opening gap-up on earnings for its shares since April 2008, when they popped 19.1%, according to data from Bespoke Investment Group.

As good as Alphabet's quarterly results were – it earned $30.69 per share on $75.3 billion in revenues, topping respective estimates for $27.34 per share on $72.3 billion – Wednesday's price action was likely driven every bit as much by news of its proposed share split.

The Alphabet Stock Split Explained

The communication services behemoth intends to issue 20 shares for each share held of its Class A, Class B and Class C stock (subject to shareholder approval, of course) after the close of business on July 15.

Now, stock splits are meaningless on a fundamental basis. A company's operations and prospects remain the same. In this particular case, the Google stock split is the equivalent of making change: Shareholders hand Alphabet a $20 bill and get 20 one-dollar bills in return.

But markets love splits all the same, and that seems to be the case yet again with Alphabet's share split.

And, to be fair, there are some technical reasons why this 20-for-1 split could give GOOGL stock a tailwind.

Alphabet closed Tuesday's trade around $2,750 per share. Post-split, that comes to about $138 per share. Although brokerages already offer customers the option of buying and selling fractional shares for free, the split should theoretically make GOOGL more popular with retail investors currently put off by the four-figure share price.

Looking farther out, it also makes Alphabet available for inclusion in the Dow Jones Industrial Average.

Google in the Dow? Maybe, But …

The blue-chip barometer isn't built like the other two major indexes, and that's what makes Alphabet's stock split so important.

The S&P 500 and Nasdaq Composite are weighted by market capitalization: the stock price multiplied by the number of shares outstanding. The Dow, however, is weighted by price. (If that seems weird, just know that the original 12 stock Dow was created in 1896 by Charles Dow, and the guy had to calculate the average every day by hand.)

One issue with the Dow's price-weighted construction is that it shuts out any stock trading at GOOGL's current lofty level. At $2,700 a share, Alphabet's stock would skew the average into meaninglessness.

UnitedHealth Group (UNH, $468.41), at roughly $475 a share, holds the greatest weight in the average today. Adding Alphabet at $3,000 would turn the Dow into the "Google and 29 Other Stocks Average."

Also know that it's up to the Dow's editors at S&P Dow Jones Indices on whether to add it to the average. That's not a simple decision. Alphabet is a member of the market's communication services sector. The Dow has two components from that sector already: Verizon (VZ, $53.20) and Walt Disney (DIS, $144.49).

Does one of those stocks then get the boot? VZ is the only telecom in the blue-chip average. DIS is the only media and entertainment conglomerate. The editors construct the Dow to reflect the broader economy. Shouldn't the Dow have a telco and a media giant?

And then there's the weighting problem again. If Alphabet (at around $140) replaced Verizon (more than $50), the communications sector's weight in the Dow would rise significantly.

The editors aren't bound by some rule that requires them to swap stocks within sectors. International Business Machines (IBM, $135.53) hasn't impressed anyone for going on a decade now. Pulling Big Blue and replacing it with Google might not be a bad idea. Their respective share prices would be roughly in line with each other after Alphabet's stock split.

Still, by strict definition, such a move would lift the communications sector's weight in the average at the expense of the tech sector. It's something the Dow editors would have to think about.

A Small Impact on the Market

Lastly, it's important to know that getting tapped for the Dow is largely symbolic.

When a stock is included in the S&P 500, its shares rise because a total of $13.5 trillion is indexed or benchmarked to the most widely used gauge of U.S. equity performance. Passive funds tracking the S&P 500 must own all of its components, weighted by market value. There's no way around it.

The Dow Jones Industrial Average, by comparison, is a dud in this regard. True, the blue-chip barometer can't be beat for brand familiarity. When regular folks talk about what the market's been up to lately, they usually mean the Dow.

But where the S&P 500 leads tens of trillions of dollars by the nose, only $36.6 billion is indexed or benchmarked to the Dow. Mega-cap stock GOOGL, by itself, is worth roughly 53 times all the money tracking and chasing the industrial average.

Sure, it would be neat if Alphabet became a Dow stock, and perhaps fitting too. But that's all speculative.

What we do know about the Alphabet stock split is that it should bring in legions of retail investors, possibly adding a tailwind – for a time – to the share price. Volume would increase … but then so too would volatility.

So be careful what you wish for.

The first day of February trading was a relative yawner as the three major indexes finished Tuesday with modest gains. But given that investors just suffered the worst month for stocks since the COVID bear market, they were likely grateful for a quiet, positive session.

If not, they received something a little more exciting in the form of an Alphabet (GOOGL, +1.7%) stock split.

Earlier Tuesday, the Institute for Supply Management announced that its January manufacturing index declined by 1.1 points to 57.6. (Readings over 50.0 indicate expansion.) That was in line with expectations and showed continuing growth in the manufacturing sector, albeit at a slower pace than in December.

"The composition of the report was soft, with a small increase in the employment component, but larger declines in the production and new orders components," says Goldman Sachs Economics Research.

The earnings calendar had a few events of note, too.

United Parcel Service (UPS, +14.1%) popped to an all-time high after easily topping the Street's quarterly earnings and revenue forecasts. The better-than-expected results reflected the ongoing surge in online shopping and CEO Carol Tome's efforts to increase profitability.

Meanwhile, Exxon Mobil (XOM, +6.4%) stock hit a level last seen in 2019. The energy major eclipsed fourth-quarter profit and sales expectations and said it would resume stock buybacks this quarter.

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The Dow Jones Industrial Average climbed 0.8% to 35,405, the Nasdaq Composite gained 0.8% to 14,346 and the S&P 500 was 0.7% better to 4,546.

After the bell, Google parent Alphabet surged another 7% or so after announcing a massive Q4 beat and an equally sizable stock split. GOOGL reported 32% year-over-year revenue growth to a record $75.3 billion to easily beat estimates of $72.3 billion. Meanwhile, earnings of $30.69 per share easily cleared consensus expectations for $27.34.

The company also said its board of directors had approved a 20-for-1 stock split on each share of Class A, Class B and Class C stock. Shareholders still must approve the measure. If passed, shareholders of record as of the July 1, 2022, close, would receive on July 15, 2022, a dividend of 19 additional shares of the same class of stock for each share they held.

Other news in the stock market today:

• The small-cap Russell 2000 enjoyed a 1.1% improvement to 2,050.
• U.S. crude oil futures eked out a marginal gain to settle at $88.20 per barrel.
• Gold futures rose 0.3% to finish at $1,801.50 an ounce.
• Bitcoin waffled back and forth for most of the day and finished up just 0.1% higher, to $38,527.63. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• AT&T (T) stock fell 4.2% today after the telecommunications firm said it will divest its WarnerMedia properties, which include HBO, CNN, TNT, TBS and Warner Bros. Studios, as part of its planned merger with Discovery (DISCA). The spinoff will give T shareholders 0.24 share for each share they currently own. AT&T also said it will slash its annual dividend, to $1.11 per share from $2.08 per share – a move that was widely expected and caused T to end its reign as an S&P 500 Dividend Aristocrat.
• Pitney Bowes (PBI) shares slumped 15.4% after the logistics company reported earnings. In its fourth quarter, PBI reported adjusted earnings of 6 cents per share, missing the consensus estimate for earnings of 11 cents per share. The firm also reported an 8.7% year-over-year decline in global e-commerce revenue, though total revenue of $983.7 million in revenue came in above analysts' average estimate for $691.6 million in sales.
• Cruise stocks were a bright spot on Wall Street today. Among the day's big winners were Carnival (CCL, +5.7%), Norwegian Cruise Line Holdings (NCLH, +3.7%) and Royal Caribbean Cruises (RCL, +4.4%).

The 'January Barometer' Bodes Poorly for Equities, But ...

January performance isn't the market indicator it used to be.

Ryan Detrick, chief market strategist for LPL Financial, recently examined the "January Barometer," first discussed in 1972 by Yale Hirsh of the Stock Trader's Almanac.

Traders sum it up like this: "As January goes, so goes the year."

Specifically, when the S&P 500 has closed January in the green, the index has finished up an average of 11.9% over the final 11 months, and higher 86% of the time. But when the S&P 500 finished January in the red, stocks rose just 2.7% on average in the final 11 months and were higher only 62% of the time.

The good news? "It is worth noting that the January Barometer has been broken lately," Detrick says. "In fact, nine of the past 10 times stocks were lower in January, the final 11 months were higher, with some huge gains in there."

The takeaway? Although hoary market sayings and historical indicators can be entertaining and occasionally useful, past performance – as always – is not indicative of future returns.

The wisest move most investors can make is to build a strong portfolio core tailored to their risk tolerances and goals. Vanguard is among a few fund providers that can help you prepare for just about any eventuality, for a song.

To that end, we've focused on handling 2022's specific challenges – inflation, rising interest rates – in our list of 2022's best Vanguard funds. These stock- and bond-funds are constructed to both benefit from and defend against many of this year's trends.

Five of the largest and best-known companies in the world are the FAANG stocks.

Or the FAAMNGs. Or the FANTAMANs. Whatever the acronym of the day is.

The original "FANGs" – Facebook, Apple, Netflix and Google – was a clever way to refer to four mega-cap tech stocks. But as other companies grew, and some of the original names changed, this alphabet soup evolved. FANGs became the FAANGs, then morphed into other less popular iterations.

The reason these acronyms stick around is because they collectively have a massive impact on the major U.S. stock market indexes thanks to their size. In fact, seven technology or tech-adjacent mega-caps – Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Facebook parent Meta Platforms (FB), Google parent Alphabet (GOOGL), Netflix (NFLX) and Tesla (TSLA) – account for roughly half of the weight of the Nasdaq-100 index and more than a fifth of the S&P 500.

However, for several of these stocks, their prominence has also resulted in rich valuations and share price gains that have outstripped profit growth, making them difficult for value-minded investors to swallow.

Fortunately, you can partake in the impressive business models of these mega-cap stocks without necessarily paying an exorbitant share price. The strategy is simple: Buy shares of businesses that provide products or services to these companies and thus benefit peripherally from the group's phenomenal growth. FAANG stocks and other giant tech firms drive outsized revenue and profit gains for their value-added resellers (VARs), software developers, component manufacturers, landlords and dozens of other business partners.

Here are seven better ways to make money off FAANG stocks. The names featured here are riding the coattails of their mega-cap partners to outsized top- and bottom-line growth. Better still, most are valued at cheaper price-to-earnings (P/E) multiples than the FAANGs they partner with, suggesting these names may still have room to run.

Data is as of Nov. 9.

• FAANG/Mega-cap relationship: Meta Platforms
• Market value: $8.5 billion

Zynga (ZNGA, $7.65) is an industry leader in mobile game development. The company initially built market share by partnering with Meta to launch mobile games like Zynga Poker, Words with Friends and Farmville that are multi-generational franchises.

It has since established download partnerships with FAANG stocks AAPL and GOOGL and, most recently, teamed up with social media firm Snap's (SNAP) Snapchat. The company's portfolio of gaming titles has been downloaded more than 4 billion times on mobile devices and reaches customers in over 175 countries.

In March, Zynga acquired cross-platform game developer Echtra Games, a move that should help extend its reach from mobile devices into PCs and consoles and expand its addressable market. And in August, the company bought Chartboost, a mobile advertising firm. Combining Chartboost's advertising and monetization platform that has an audience of roughly 700 million monthly users with Zynga's games should be a catalyst for revenue growth.

More good news for Zynga arrived in September when a California judge ruled that Apple cannot prevent game developers from bypassing its App Store and the 15%-30% commissions the tech giant charges on app purchases. This ruling enables gaming companies to reduce costs and retain a higher percentage of revenues.

In the third quarter, Zynga's bookings rose 6.4% year-over-year to $668 million and revenues surged 40.2% to $705 million. The company also reported $1.3 billion in cash and investments, up 76.8% from Q3 2020, which it says it will use to fund future acquisitions.

Over the last three years, Zynga has grown revenues 45% annually and has more than doubled normalized net income and levered free cash flow – the amount of cash a company has on hand after meeting its financial obligations – on an annual basis.

Wall Street analysts are bullish on ZNGA, too. Of the 19 following the stock that are tracked by S&P Global Market Intelligence, 13 say it's a Strong Buy, five call it a Buy and one rates it at Sell. Plus, the pros' consensus price target of $11.12 represents implied upside of 45.4% over the next 12 months or so.

• FAANG/Mega-cap relationship: Apple
• Market value: $187.7 billion

Qualcomm (QCOM, $166.74) has benefitted from its long – not always amicable – relationship with Apple and remains a key chip supplier for new iPhone models. Apple's 5G enabled iPhone 12 uses QCOM chips and teardowns of the recently launched iPhone 13 show it contains Qualcomm modems.

Apple is starting to design its own chips, but Qualcomm should continue to be at the forefront of the transition to 5G technology. According to QCOM, its Snapdragon processors offer the fastest 5G speeds available, with devices powered by these chips downloading content roughly 67% faster than the next largest competitor. Over 225 million 5G enabled smartphones shipped in 2020 and J.P. Morgan Research estimates this volume will more than double to 525 million this year and hit 725 million in 2022.

QCOM is further hedging its bets by making big investments in the Internet-of-Things (IoT) and in connected cars. During this year's September quarter, Qualcomm's IoT revenues rose 66% year-over-year to $1.5 billion. The global industrial IoT market was valued at $216 billion in 2020, according to market research firm Grand View Research, and is projected to grow 23% annually through 2028.

Qualcomm's product offerings for connected cars range from telematics to connectivity platforms and digital cockpits. Two years ago, less than 50% of new cars incorporated internet connectivity, but that percentage is expected to rise to 70% by 2025. QCOM's automotive revenues increased 44% during the September quarter to $270 million and reached $975 million for all of fiscal 2021.

Supporting this growth is the company's recent acquisition of Arriver whose driver assistance assets will be integrated into Qualcomm's own ADAS (advanced driver assistance systems) platform.

QCOM's revenues increased 43% year-over-year to $9.3 billion during the September quarter and adjusted earnings per share of $2.55 were up 76%. In its fiscal first quarter, the company is guiding for revenues of $10.0 billion to $10.8 billion and adjusted EPS to arrive between $2.90 and $3.10.

Of the 32 analysts covering the shares tracked by S&P Global Market Intelligence, 16 call it a Strong Buy, six say Buy and 10 have it at Hold. QCOM shares trade at a reasonable 15.8 times forward earnings – well below AAPL's forward P/E ratio of 27.

• FAANG/Mega-cap relationship: Netflix
• Market value: $63.0 billion

Roblox (RBLX, $109.52) develops on-line gaming platforms that offer users an immersive, virtual 3D experience. Last year's pandemic-induced lockdown fueled a surge in new players and was a major growth catalyst for the company. The number of daily active users on its platforms is up 31% from one year ago to 47.3 million. Although not yet profitable, revenues for RBLX more than doubled in the September quarter to $509.3 million and free cash flow rose 7% to $170.6 million.

The company is poised for even stronger growth in the second half of this year thanks to the recent launch of its 3D game that mimics "Squid Game" – Netflix's hugely popular new TV series. Since its mid-September release, the South Korean horror/drama about players in a deadly tournament of children's games has become Netflix's most-watched series to date, with interest already exceeding previous hits like "Stranger Things," which was also the theme of a sponsored Roblox event.

Netflix is not Roblox's only partner. The company teamed up with Sony Music Entertainment in July to build metaverse music experiences around Sony artists and create new revenue streams tied to virtual entertainment.

Analysts forecast 47% revenue growth for RBLX this year, followed by 20% annual growth over the next two years.

Of the 10 analysts following RBLX stock tracked by S&P Global Market Intelligence, four call it a Strong Buy, three say Buy, two believe it's a Hold and one deems it a Sell. CFRA Research analyst John Freeman is one of those with a Strong Buy rating on RBLX, calling the company's third-quarter results "outstanding" and projecting "even stronger preliminary numbers" for the start of the fourth quarter.

The stock surged more than 40% in the wake of its solid third-quarter earnings report, so this may be one to watch for an entry point on price weakness.

• FAANG/Mega-cap relationship: Amazon
• Market value: $109.8 billion

A simple and safe way to capitalize on Amazon's stellar growth is to own shares of its largest landlord, Prologis (PLD, $148.45). This preferred partner of most leading e-commerce and logistics businesses is also the world's largest warehouse real estate investment trust (REIT). Prologis owns roughly 4,700 properties totaling nearly 1 billion square feet of leasable space and has operations across 19 countries.

The FAANG member is PLD's largest tenant by far, accounting for roughly 22 million square feet of leasing space and 6.1% of net rents. Prologis' next largest tenants are Home Depot (HD, FedEx (FDX), UPS (UPS) and XPO Logistics (XPO). Together these four firms contribute 6.1% of annual rents.

The e-commerce tailwinds that help Prologis show no signs of slowing. During the pandemic, customers increasingly shopped online and that trend continues to build. According to market research firm eMarketer, online purchases in the U.S. are forecast to rise from approximately $709.8 billion – or 14.5% of all retail sales – currently to $1.0 trillion, or 18.1% of retail sales, in three years. And this trend could fuel demand for an additional 1.0 billion square feet of warehouse space by 2025, says global commercial real estate services firm JLL.

According to Prologis, every $1 billion increase in e-commerce sales creates demand for another 1.2 million square feet of warehouse space. Amazon alone added $49.4 billion to sales in the third quarter.

Prologis has consistently ranked among the best-performing REITs in the warehouse sector. On an annual basis, core FFO (funds from operations, a key REIT earnings metric) per share has risen 10% and dividends have risen 9% over the past five years.

During the September quarter, Prologis CEO Hamid R. Moghadam said vacancies were at unprecedented lows and that "space in our markets is effectively sold out." The REIT is guiding for roughly 7% core FFO per share growth in 2021, supported by an industry-leading balance sheet and a land portfolio with an estimated $21 billion buildout potential.

Barclays analyst Anthony Powell initiated coverage of PLD with an Overweight (Buy) rating in September, saying industrial is his favorite REIT subsector. CFRA Research analyst Stewart Glickman recently said "fundamentals point to an enviable supply-demand situation heading into 2022," but lowered his rating from Strong Buy to Hold recently due to price gains on PLD stock that have outpaced its REIT peers so far this year.

• FAANG/Mega-cap relationship: Alphabet (Google)
• Market value: $72.8 billion

Workday (WDAY, $293.48) hit the ground running ahead of its October 2012 initial public offering (IPO) by signing search giant Google as one of its first customers. Google replaced parts of its internally developed human resources (HR) software with Workday software. Since then, WDAY has become the industry leader in cloud-based software that helps companies manage finance, HR and strategic planning functions.

Workday has grown to more than 55 million users worldwide and claims over 50% of Fortune 500 companies as customers.

The company delivered a stellar June quarter with revenues up nearly 19% year-over-year to $1.26 billion, fueled by a 20% rise in subscription revenues. Workday's adjusted EPS came in at $1.23, more than 46% higher than the year prior, and the company raised its full-year guidance for subscription revenues and operating margins.

Workday's new strategic partnership with Google Cloud is expected to spur growth for both companies by enabling customers to deploy Workday finance, HR and strategic planning software on Google Cloud. The multi-year partnership also includes co-marketing and cross-selling programs to increase new business opportunities across the U.S. In addition, the two companies plan to explore opportunities to co-develop cloud-based applications for customers in the retail, healthcare and financial services industries.

Google subscribed to additional products in September – Workday Adaptive Planning, Workday Extend, Workday Prism Analytics and Workday Strategic Sourcing – and expanded its use of WDAY human resources tools by adding new applications.

Barclays analyst Raimo Lenschow upgraded WDAY shares to Overweight in August based on his expectations of increased IT spending in the second half of 2021. Most analysts are bullish on Workday. Of the 34 covering the stock tracked by S&P Global Market Intelligence, 19 say it's a Strong Buy, 9 believe it's a Buy, five deem it Hold and one calls it a Sell.

Plus, the company is forecast to grow EPS 26% annually over the next three-to-five years, or nearly twice the anticipated growth rate of the overall IT sector.

• FAANG/Mega-cap relationship: Microsoft
• Market value: $8.5 billion

Arrow Electronics (ARW, $119.98) built its business supplying semiconductors to original equipment and contract manufacturers. The company has been a Microsoft partner for over a decade, providing electronics and services that are directly integrated into MSFT portals for service provisioning and configuration. In 2019, Microsoft named the company its Indirect Provider of the Year.

More recently the company began offering enterprise computing software for data center, cloud, security and analytics services. Already a Microsoft Cloud Service Provider, Arrow is partnering with MSFT to deploy tools on its Azure platform that speed development of IoT solutions. By participating in the IoT space, Arrow benefits from an expected surge in global IoT spending.

Earlier this year, Arrow expanded its relationship with one of the original FAANG stocks: Amazon.com. Per its agreement with Amazon Web Services (AWS), Arrow will be able to resell, manage, service, support and bill AWS accounts on behalf of their customers. Arrow is also working with AWS to support OEM customers that are building smart devices incorporating the cloud technology.

Thanks to its massive scale, Arrow was able to secure semiconductor inventories in 2021 that many competitors could not. As a result, the company's September quarter sales improved 18% year-over-year and EPS rose 94%. Analysts think Arrow will improve on its impressive EPS growth rate by delivering 17% annual EPS gains over the next three to five years.

ARW shares are cheap, too, trading at 6.8 times forward earnings. For the sake of comparison, Microsoft's forward P/E ratio is 36.8 and Amazon's is 55.9.

• FAANG/Mega-cap relationship: Tesla
• Market value: $603.1 million

Modine Manufacturing (MOD, $11.63) designs, manufactures and sells heat transfer products used by customers in the HVAC systems, commercial and industrial, heavy-duty equipment and automotive markets.

The company has long been a key supplier of battery chilling technologies to Tesla, the world's largest manufacturer of electric vehicles (EVs). In the first nine months of 2021, TSLA produced nearly 625,000 vehicles – up almost 88% from the year prior.

Demand for electric vehicles is forecast to rise nearly 22% annually to 233.9 million units by 2027 – valuing the market at nearly $2.5 trillion by 2027 – according to market research firm Meticulous Research. Wisconsin-based Modine's established relationship with Tesla could become a major growth catalyst, particularly if worsening trade relationships with China cause Tesla to shift more of its business to reliable U.S. suppliers.

Modine recently sold its traditional automotive business and plans to focus more resources on computer data center cooling products, industrial HVAC and electric vehicles. Expanding in more profitable niches will enable Modine to increase operating margins and free cash flow and to accelerate repayment of debt.

In September, Modine said it is creating a separate business unit focused exclusively on cooling technologies for electric vehicles. The company is in discussions with 30 customers, has commenced production on three programs and won five additional contracts that will launch over the next 12 months.

Modine achieved double-digit sales growth in three out of four of its business units during the September quarter, though total year-over-year revenue growth came to a more modest 4% amid supply chain issues, a global semiconductor shortage and a loss associated with the sale of its air-cooled automotive segment.

Modine has Strong Buy ratings from both of the Wall Street analysts tracking the stock. It also looks bargain-priced at 7.5 times forward earnings – especially when compared to TSLA's forward P/E ratio of 26.7.

"It may be a matter of months, or more likely a few years," I wrote in September 2017, "but sometime soon a U.S. company will breach the trillion-dollar mark." By June 2021, to my pleasant surprise, all five companies I highlighted had become trillionaires.

The question now is how high these stocks can go. Big is not beautiful to many regulators and elected officials (of both parties), and President Biden is developing an executive order to rein in businesses that dominate their sectors. The Federal Trade Commission (FTC) lost an antitrust case against Facebook (FB) in June, but the setback merely convinced many in Congress that tougher laws are needed.

Another constraint is a sort of law of financial gravity. It's not hard to imagine a stock with a market capitalization (stock price times shares outstanding) of about $100 billion becoming what the great mutual fund manager Peter Lynch called a four-bagger – that is, quadrupling in value.

That could happen with Uber (UBER), Square (SQ) or Zoom Video Communications (ZM). But Apple (AAPL)? As a four-bagger, it would have a market cap of $9 trillion, roughly the same as the gross domestic products of Germany and Japan combined. Investing in giant companies may considerably limit your upside.

Then again, a few years ago the whole concept of a trillion-dollar stock was alien, even nutty. Now, we have Amazon.com (AMZN), which hit the mark just a year after my 2017 column, and Alphabet (GOOGL), the parent of Google, which exceeded $1 trillion in January 2020. Facebook hit the milestone in June. Although it has since retreated some (based on data calculated for this column as of July 9), we're including it in the trillionaires club for now. Plus, there are two stocks whose market caps have breached two trillion dollars: Apple and Microsoft (MSFT).

I've now disclosed the punch line to this column in the boldfaced names (as usual, stocks I like are in boldface). I'm doubling down and recommending them all. As for the trustbusters: If the worst happens, and Google is forced to divest YouTube, Facebook has to shed Instagram, or Amazon has to spin off its cloud business, well, so what? As a shareholder, you will get stock in the new stand-alone companies, too.

The most important fact about these trillionaires is that, unlike the highfliers of the late 1990s, they are making tons of money. Their profit margins are spectacular. For every three dollars in revenues, for example, Microsoft and Facebook drop about a dollar to the bottom line.

Hand Over Fist

The trillionaires are so profitable that they can make massive capital investments that keep them far ahead of competitors, whether actual or potential. Last year, Amazon pumped $40 billion back into its own business, making the company by far the largest capital investor in the U.S. Alphabet and Microsoft rank first and second among U.S. companies in spending on research and development.

All five trillionaires have exceptional balance sheets. Microsoft is one of only two U.S. firms – the other being Johnson & Johnson (JNJ) – with a credit rating of AAA from Standard & Poor's. That's higher than the U.S. government is rated. Alphabet has $135 billion in cash and securities and $28 billion in debt.

Only two trillionaires pay dividends: Microsoft and Apple, both com­ponents of the Dow Jones industrial Average. Neither yields more than 1%, but you don’t invest in stocks like these for the payout. They can earn far more by investing their profits than you can. Apple's return on common equity over the past 12 months was 103%.

Let's take a deeper dive on Alphabet. Its main business is selling highly effective, targeted adver­tising. Revenues took a modest hit because of the 2020 pandemic, so they rose 13% for the year – which for most companies would be sensational. Alphabet is now recovering smartly, with revenues jumping 34% in the first quarter of 2021 compared with the same period a year ago. Google's sales this year will easily exceed $200 billion, up from $38 billion 10 years ago.

The consensus estimate is that profits will rise roughly 50% this year, then settle down to something that has become normal for Alphabet: about 20% annualized. That means close to $100 in earnings per share for the next 12 months. At $2,510 a share, the stock is underpriced. Where else can you buy such consistent growth?

The answer is other trillion-dollar stocks, of course. They're all increasing their profits by double digits. For the year ahead, Apple is forecast to earn $5.12 a share, for a forward price-earnings ratio of 28. Like Alphabet and Apple, Facebook has a P/E in the high 20s. That's not that much more than the average for the S&P 500 as a whole, currently 24. Amazon is the outlier, at nearly 65, but that’s down considerably from 186 four years ago, and Amazon deserves a high P/E. Analysts foresee annual average earnings growth of 38% for the next five years.

Flexibility Pays Off

Amazon was a huge beneficiary of the change in retail shopping behavior, reinforced by the pandemic. The company's U.S. e-commerce sales increased 44% in 2020, and its market share is forecast to rise just above 40% this year; Walmart (WMT) is second in share at 7%.

As I pointed out four years ago, what makes a trillionaire like Amazon attractive is its flexibility. Its Web Services subsidiary, which sells cloud storage, contributed more to operating income in 2020 than did retail sales. In addition, Amazon produces movies and TV shows, and digital advertising is soaring.

Size attracts the attention of lawmakers, regulators and interest groups, but attempts to constrain the trillionaires have so far been unsuccessful.

The recent FTC suit against Facebook, said the judge in the case, did not provide enough support for claims of monopoly. After all, Facebook's share of the digital ad market is 25%, compared with 29% for Google and 10% for fast-rising Amazon. One of the FTC's allegations was that Facebook bought up potential rivals, including WhatsApp and Instagram, thus eliminating competition. But Instagram had just 30 million users in 2012 when Facebook, then with about 1 billion users, acquired the company for $1 billion. Today, Instagram has 1.3 billion users and Facebook has 2.8 billion. All of the trillionaires make acquisitions; some work out very well.

Will any other stocks join the trillionaires club? Currently, there's a big drop-off from Facebook, at $994 billion, down to the sixth-largest U.S. company, Tesla (TSLA), at $633 billion, followed by Berkshire Hathaway and Visa. I’m betting Tesla will make the club in the next two or three years.

If you want to buy the five trillionaires as a group, a good choice is Red Oak Technology Select (ROGSX), a managed mutual fund that owns just 27 stocks, with the five trillionaires accounting for the top five holdings and representing 33% of assets. For more concentration, consider Invesco QQQ Trust (QQQ), an exchange-traded fund that mimics the Nasdaq 100, the largest stocks on that exchange. The trillionaires represent roughly 40% of QQQ's assets – and you get Tesla to boot.

The best Nasdaq stocks for new money look quite different than they did just a few months ago.

Last year, the technology-heavy Nasdaq Composite, led by mega-market-value stocks such as the FAANGs – Facebook (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOGL) – could almost do no wrong.

Indeed, the Nasdaq gained almost 44% on a price basis alone in 2020, leaving the broader S&P 500 (+7.3%) and blue-chip Dow Jones Industrial Average (+16.3%) far behind in its wake.

But now inflation fears and a general rotation away from growth stocks toward more value-oriented names has made finding winning Nasdaq stocks a much tougher beat. The index was up a meager 1.1% for the year-to-date through May 12. That compares unfavorably to gains of 8.2% for the S&P 500 and 9.7% for the Dow, respectively.

Although many of last year's best Nasdaq stocks have continued their winning ways, it has been harder to find promising prospects off the beaten path. So we decided to suss out some names that Wall Street analysts identify as being the best Nasdaq stocks.

To that end, we used S&P Global Market Intelligence to screen the Nasdaq Composite for stocks with the highest-conviction Strong Buy recommendations on the Street.

Here's how it works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Strong Buy call.

We limited ourselves to stocks with at least 10 Strong Buy recommendations. Then we dove into analysts' research, fundamental factors and analysts' estimates.

The result? This list of 11 Nasdaq stocks with Strong Buy consensus recommendations. True, it's only a beginning, but this isn't a bad place to start when looking for the best Nasdaq stocks to buy during this tough time for the index.

Share prices are as of May 12. Data and analysts' recommendations are courtesy of S&P Global Market Intelligence, unless otherwise noted. Stocks are listed by strength of analysts' consensus recommendation, from weakest to strongest.

• Market value: $10.5 billion
• Analysts' ratings: 13 Strong Buy, 3 Buy, 2, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.39

Gaming and Leisure Properties (GLPI, $44.30) is the lone real estate investment trust (REIT) represented among the best Nasdaq stocks. And it's a favorite in the casino real estate industry thanks to both a snazzy dividend yield and attractive growth prospects coming out of the pandemic.

The company, whose properties include the Belle of Baton Rouge and Argosy Casino Riverside in Missouri, collected 100% of its rents in 2020, says UBS Global Research analyst Robin Farley, who is one of just two analysts with a Hold-equivalent rating on Gaming and Leisure Properties.

Stifel's Simon Yarmak is among the more crowded GLPI bull camp, citing "an attractive portfolio of regional assets, which has returned to strong operating performance."

Perhaps most optimistic of all is Raymond James analyst RJ Milligan, whose Strong Buy call and $52 price target (17% upside) is based partly on the stock "trading at an unwarranted discount."

"With zero exposure to the Las Vegas Strip, GLPI's assets have seen a stronger recovery than the other gaming REITs," Milligan says in a client note.

Lastly, Mizuho Securities initiated coverage of Gaming and Leisure Properties at Buy in late March, citing its unique attributes in an industry set to benefit from a recovery in consumer spending and gaming revenue.

"GLPI is the most diversified of the three Gaming REITs, with strong underlying tenant credit and structural lease enhancements, resulting in a lower-risk platform that we believe is under-appreciated by the market," writes Mizuho analyst Haendel St. Juste.

An added bonus for income investors: GLPI's dividend yield of 5.9% towers over that of the Nasdaq Composite, which offers a comparatively puny 0.5%.

• Market value: $1.8 trillion
• Analysts' ratings: 25 Strong Buy, 10 Buy, 2, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.38

Microsoft (MSFT, $239.00) might be second only to Apple when it comes to market value, but it beats the iPhone maker handily when it comes to analysts' ardor.

What gives MSFT the edge over Apple (Buy) when it comes to the Street's sentiment is its overwhelming success in cloud services.

Wedbush analyst Daniel Ives says Microsoft's most recent quarterly results were "another cloud masterpiece as MSFT is continuing to see massive cloud momentum that is still in the early days of playing out." Ives rates shares at Outperform (equivalent of Buy).

CFRA Research analyst John Freeman (Strong Buy) adds that investors shouldn't lose sight of the company's other growth areas. For example, the launch of the Xbox Series X gaming console drove 51% year-over-year growth in Xbox content and services revenue in the final calendar quarter of 2020.

However, the bottom line is that MSFT's bottom line remains keyed to the cloud.

"Microsoft has refocused the company around Azure and Office 365, which we view as several large, multi-year secular growth engines," writes Stifel analyst Brad Reback (Buy).

And let's not forget MSFT's suitability for income investors. This component of the Dow Jones Industrial Average offers a modest dividend yield of 0.9%, but it has been improving its payout at a robust clip of nearly 9% compounded annually over the past five years.

On the downside, few Nasdaq stocks look cheap these days, and MSFT is no exception. Shares trade at almost 30 times 2022 estimated earnings, per S&P Global Market Intelligence. That might be a bit rich given analysts' average annual EPS growth forecast of 15.6% over the next three to five years.

• Market value: $13.7 billion
• Analysts' ratings: 13 Strong Buy, 5 Buy, 1, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.37

Shares in Wix.com (WIX, $239.68) tumbled sharply following its May 11 earnings report despite posting a narrower-than-expected loss, as investors were rattled by some mixed full-year guidance.

But the market's reaction didn't push analysts away from their bullish outlook on the stock. Wix.com, which operates a cloud-based platform that enables users to create websites with integrated payments and other applications, is simply too well-positioned for the post-pandemic era, they say.

"We see heightened business investment in online presence post the pandemic as likely to persist for multiple years as consumer habits continue to shift online, and believe this is further supported by continued strength in new business creation, which we believe will have increasingly greater focus on online presence and ecommerce," writes Wedbush analyst Ygal Arounian (Outperform).

Keybanc analysts, for their part, maintained their Overweight (Buy) rating on WIX following its first-quarter earnings release.

As part of the company's focus on new business creation, Wix in early March announced the acquisition of SpeedETab, an ordering and payment technology provider for restaurants. Terms of the deal were not disclosed.

"The SpeedETab acquisition was a logical addition to the company's expanding presence in commerce (both online and offline) and specifically restaurants," writes William Blair analyst Matthew Pfau (Outperform). "The improvement to its Wix Restaurants solution appears timely considering the likelihood of reopenings over the coming months as we approach the end of the pandemic."

The post-earnings rout leaves shares with high implied upside. Indeed, analysts' average target of $352.11 gives WIX implied upside of 47% over the next 12 months or so, easily putting it among the best Nasdaq stocks in the pros' eyes.

• Market value: $2.1 billion
• Analysts' ratings: 11 Strong Buy, 2 Buy, 0, Hold, 1 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.36

Analysts are amped that Axsome Therapeutics (AXSM, $57.01), a small-cap biotechnology company, looks about set to hit the market with a promising new drug.

Axsome's product pipeline includes therapies in various stages of development to treat migraine, Alzheimer's disease agitation and narcolepsy, among other illnesses. But it's the company's progress with a treatment for major depressive disorder that has the Street in love with this stock.

The Food and Drug Administration in April accepted the company's new drug application for AXS-05 with priority review. Analysts are optimistic that the highly promising therapy could be given the green light for sale and marketing before too long.

"We remain bullish on the potential for AXS-05 to be a disruptive option in a massive market with a significant unmet need," writes William Blair analyst Myles Minter. "We reiterate our Outperform rating on Axsome with the potential for the company to transition to a commercial entity by year end."

Not everyone is quite so optimistic, however. Bank of America Global Securities rates shares at Underperform (the Street's lone Sell call), saying AXSM's second-half introductions of drugs for depression and migraine are likely to disappoint.

"Both launch opportunities are in markets where AXSM's drugs are undifferentiated vs. other branded drugs," writes BofA analyst Ashwani Verma. "Moreover, competitors have dedicated significant resources on commercialization."

Even with that dissent, the Street's average target price of $143.43 gives the stock implied upside of more than 150% in the next 12 months or so, which makes it the best Nasdaq stock on this list in that respect.

• Market value: $4.0 billion
• Analysts' ratings: 11 Strong Buy, 3 Buy, 1, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.33

Energy stocks aren't well-represented among the best Nasdaq stocks, even though they're some of Wall Street's favorite recovery plays. And few of them boast a higher rating from analysts than PDC Energy (PDCE, $40.27).

Analysts like the independent oil & gas exploration and production company's base of assets. Moreover, they love its ability to punch well above its weight in generating levered free cash flow (FCF) – the cash left over after capital investments, dividend payments and payments to creditors.

"In our view, PDCE offers investors a compelling asset mix between the Delaware Basin and Niobrara Shale in the DJ Basin with a resilient asset base and a top-tier balance sheet," writes Stifel analyst Michael Scialla, who rates the stock at Buy.

Goldman Sachs analyst Neil Mehta recommended that clients buy PDCE during the March pullback thanks to his expectation that the firm will produce $1.1 billion in FCF over the next two years. Note that $1.1 billion in FCF would represent about a quarter of PDCE's entire market value.

Lastly, the Street applauds the company's debt-reduction efforts and its intention to return $120 million in cash to shareholders through a stock repurchase plan and a new dividend program set to launch later this year.

As for valuation, shares still look attractive even after doubling so far in 2021. PDCE trades at just 8.2 times estimated earnings for 2022, while analysts project average annual EPS growth of 7% over the next three to five years.

The Street's average target price of $48.19 gives PDCE implied upside of roughly 20% over the next year or so.

• Market value: $111.5 billion
• Analysts' ratings: 28 Strong Buy, 8 Buy, 2, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.32

JD.com (JD, $71.25), the Chinese e-commerce giant, is pouring money back into building the business. However, some analysts remain on the sidelines over regulatory risk and a lack of cash being returned to shareholders.

"We expect JD to continue reinvesting its free cash flow into the business and project no dividends over our forecast period," writes CFRA Research analyst Aaron Ho. "We reiterate our Hold opinion on JD following China's recent proposal of new e-commerce antitrust law."

Ho, however, is in the minority on the Street, where the great majority of analysts are bullish on JD, thanks in part to its outsized growth prospects.

"JD operates in a large and growing market with controlled logistics and an initial first-party model that has grown into a first-party/third-party hybrid," writes Stifel analyst Scott Devitt (Buy). "The China e-commerce market exceeds $1 trillion in sales with online penetration of above 20%, and we believe JD is well-positioned to continue to participate in China consumer and retail expansion for years to come."

Indeed, thanks to that massive market opportunity, analysts expect JD to generate average annual EPS growth of 31% over the next three to five years.

Like many of the best Nasdaq stocks on this list, JD doens't necessarily look cheap. But Wall Street likes the valuation. That's because, after falling 19% for the year-to-date, JD stock trades at less than 28 times analysts' estimated earnings for 2022 – arguably quite the bargain in light of that long-term EPS growth forecast.

Analysts' average price target of $108.36 gives JD stock implied upside of more than 50% in the next 12 months or so.

• Market value: $1.5 trillion
• Analysts' ratings: 32 Strong Buy, 12 Buy, 1, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.31

It's no secret that the Street adores Google parent Alphabet (GOOGL, $2,200.25) and has been intensely bullish for a while. Indeed, analysts' consensus recommendation hasn't fallen below Strong Buy for well more than a year.

And, heck, what's not to like? The company, with a market value of roughly $1.5 trillion, is forecast to generate average annual EPS growth of almost 20% over the next three to five years. That's heady stuff for a company this large.

But as Argus Research points out, Alphabet's immense earnings power is a natural consequence of its basic business model.

"We see Alphabet as one of the tech industry's leaders, along with Facebook, Apple, Amazon, and Microsoft," writes Argus Research analyst Joseph Bonner (Buy). "These companies have come to dominate new developments in mobile, public cloud, and big data analytics, as well as emerging areas such as artificial intelligence and virtual/augmented reality."

As attractive as GOOGL remains for the longer term, it has been more than holding up its own end in the short term too. The stock is up about 25% for the year-to-date, vs. a gain of about 1% for the Nasdaq. Some analysts would attribute that resilience in part to shares looking like a bargain compared to many Nasdaq stocks – and even the broader market.

"We continue to favor Google as a core large-cap growth holding given the strong digital advertising backdrop, continued strength from Cloud, ongoing share repurchases (with the newly authorized $50 billion program) and a reasonable valuation," writes Canaccord Genuity analyst Maria Ripps (Buy).

With shares trading at 24 times estimated earnings for 2022, you could even say they're cheap.

GOOGL's price/earnings-to-growth (PEG) ratio – which measures how expensive a stock is relative to its growth prospects – stands at 1.2. That represents a 25% discount to the S&P 500, per Refinitiv Stock Reports Plus.

• Market value: $2.1 billion
• Analysts' ratings: 11 Strong Buy, 4 Buy, 0, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.27

Health Catalyst (HCAT, $48.16) provides a cloud-based data platform, analytics software and professional services for hospitals and other healthcare organizations. The idea is that a partnership with this software-as-a-service (SaaS) company can help healthcare providers improve patient outcomes.

Canaccord Genuity has HCAT as one of its top healthcare IT stocks for 2021. Shares might look pricey compared with those of its sector peers, but Canaccord says they're worth it.

"We believe a premium valuation is justified for Health Catalyst as it provides 'next generation' analytics to customers," says Canaccord (Buy). "Furthermore, we are expecting HCAT to generate revenue growth of 22% and 21% in 2021 and 2022, respectively, while its peer group is expected to generate average revenue growth of 9% in each of those years, or less than half of HCAT's estimated growth rate."

Stifel chimes in with a Buy rating of its own.

"Our thesis reflects HCAT's market leadership in the Healthcare Analytics market," writes analyst David Grossman. "We expect HCAT to maintain 20%-plus organic growth through a combination of new clients and contractual price escalators."

And at Raymond James, analyst John Ransom (Strong Buy) expects business to accelerate in the coming months as the COVID-19 crisis gradually abates.

"We continue to expect to see rising demand for the Health Catalyst suite of solutions going forward, particularly given the resurgence of both payor and provider focus on value-based care, which the company's data and analytics play directly into," Ransom says.

• Market value: $10.0 billion
• Analysts' ratings: 10 Strong Buy, 3 Buy, 0, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.23

It's no secret the housing market is red-hot right now, and that has analysts feeling extremely confident in the outlook for Builders FirstSource (BLDR, $46.64).

The company, which manufactures and supplies building materials, manufactured components and construction services to professional homebuilders, has built itself up through small acquisitions over the years. That's paying off now amid a nationwide shortage of new homes.

Most recently, the company acquired John's Lumber, a family-owned supplier of lumber and other building materials, to boost its presence in Michigan. John's generated almost $50 million in revenue over the past 12 months, BLDR said. Other terms of the deal were not disclosed.

It's a good time to be bulking up, analysts say, given the tremendous economic tailwinds at the company's back.

"Two macroeconomic trends are driving historical financial performance, including: 1.) significant demand for new home construction; and 2.) historically high lumber commodity prices," writes B. Riley Securities analyst Alex Rygiel (Buy).

"We anticipate new home construction activity to remain brisk for some time, however, there is increasing risk that we are nearing the peak in lumber commodity prices," Rygiel adds. "With that said, we continue to believe BLDR can deliver superior financial performance in 2021 and 2022 even at lower lumber prices, and its valuation remains attractive."

Analysts have had a consensus Strong Buy recommendation on the stock for more than nine months now, and it has been paying off. BLDR is up more than 40% over the past six months, and 17% for the year-to-date.

The Street expects BLDR to be one of the best Nasdaq stocks to buy in the year ahead. Analysts' average target price of $66.58 gives BLDR implied upside of more than 40% in the next year or so.

• Market value: $1.6 trillion
• Analysts' ratings: 36 Strong Buy, 11 Buy, 0, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.23

Amazon.com (AMZN, $3,151.94) lags behind only Apple and Microsoft on the list of largest U.S. companies by market value, but it's ahead of both in the pros' eyes.

Its average recommendation score of 1.23 hinges on a whopping 36 Strong Buy ratings. By comparison, AAPL gets 23 Strong Buy calls, while MSFT – as noted above – claims 25.

And is it any wonder? We're talking about a company with a market capitalization of $1.6 trillion that analysts expect to deliver average annual EPS growth of almost 35% over the next three to five years.

So much for the law of large numbers.

AMZN was a juggernaut even before COVID-19 swept the globe and upended so much of what we thought we knew about the future of e-commerce. Now, more than a year into the pandemic, it's clear the company has only grown stronger.

"Amazon is one of the primary beneficiaries of COVID given accelerated e-commerce sales growth and Prime membership adoption, as well as the digital transformation that will accelerate cloud services adoption," writes Stifel analyst Scott Devitt (Buy) in a note to clients.

Devitt also reminds clients that the pandemic sparked online purchases of grocery and consumables – categories Amazon struggled to penetrate for years – which should support its next leg of retail growth.

And let's not forget the company's leadership in cloud services. With e-commerce, cloud and an emerging high-margin marketing business, Amazon "remains well positioned in a recovery scenario given cloud services, marketing services and certain e-commerce categories/geographies are still in the early phases of development," the analyst writes.

With an average price target of $4,238.46, analysts give AMZN stock implied upside of around 35% in the next 12 months or so. With shares off about 3% so far in 2021, you can practically hear the Street shouting, "Buy the dip!"

• Market value: $2.6 billion
• Analysts' ratings: 10 Strong Buy, 2 Buy, 0, Hold, 0 Sell, 0 Strong Sell
• Analysts' average recommendation: 1.17

Rocket Pharmaceuticals (RCKT, $41.61) is another small biotech with promising drugs under development, and it currently tops this list of the best Nasdaq stocks. It's ultra-low score of 1.17 indicates a strong Strong Buy.

However, as with all such stocks in its space, caution is warranted. Names like RCKT tend to be a bit speculative, after all.

Regardless, analysts are plenty bullish on the name, which focuses on developing gene therapies for rare and devastating pediatric diseases.

The Street's Strong Buy rating remained in place even after the company recently received some less-than-great news. In early May, Rocket Pharma disclosed that the FDA put a clinical hold on trials for the development of its RP-A501 drug to treat Danon disease: a rare genetic condition characterized by weakening of the heart muscle.

"The clinical hold on RP-A501 (Danon disease) is less-than-ideal but not thesis-changing for us," writes Stifel analyst Dae Gon Ha (Buy). "Management anticipates enrollment delay of one quarter."

The bigger picture, Ha says, is that RCKT's "promising early data keeps us optimistic of future updates and the odds of regulatory approval."

At William Blair equity research, analyst Raju Prasad (Outperform) cites the company's "sound strategic approach" to the use of its platform, as well as favorable early data.

Note well that Rocket Pharma isn't forecast to be profitable until 2024. Additionally, although it has a very high-conviction average recommendation of Strong Buy, only 12 analysts cover the stock.

As we said, these sorts of stocks tend to be speculative bets, and that means they also tend to be volatile. Shares more than doubled over the past 52 weeks, and yet are also off nearly 25% for the year-to-date.

Analysts' average target price of $70.91 gives RCKT implied upside of around 70% over the next year or so. That could very well come to pass. Just make sure this name is a solid fit for your own personal risk profile before pulling the trigger.

2020 was a tough year by any measure. But if anyone looked back on last year with fondness, it likely would've been investors in the so-called FAANG stocks.

COVID-19 kicked off a stock market crash, forced much of the economy to pivot to a work-from-home model, triggered a recession and record unemployment, and set off a chain of corporate bankruptcies.

However, the various difficulties presented by the COVID-19 pandemic actually played right into the hands of the FAANGs – Facebook, Amazon.com, Apple, Netflix and Google parent Alphabet. These five stocks averaged a 58.0% total return (price plus dividends) in 2020, compared to an 18.4% return for the S&P 500, and largely helped power a 44.9% return for the Nasdaq Composite.

But we're well into 2021 now, and several clouds have begun to amass above the FAANG stocks. In addition to individual problems unique to each company, governmental regulation and taxation are a growing potential headwind to them all.

"The digital economy is growing two-and-a-half times faster than global GDP and unsurprisingly, governments want their cut," says Daniel Eye, head of asset allocation and equity research at Fort Pitt Capital Group. "'If you can't beat 'em, tax 'em,' is the mantra being adopted by many foreign politicians. Governments across Europe, Asia and Canada are either enacting or proposing digital services taxes on U.S. technology companies."

Read on as we look at some of the latest challenges facing the FAANG stocks, as well as what (if anything) each is doing about it. Most analysts remain largely bullish on each of these stocks despite these issues; still, investors are typically served well by fully understanding any headwinds that their holdings face.

Data is as of April 4.

• Market value: $848.8 billion
• 2020 total return: 33.1%

Facebook (FB, $298.66) is like many of the FAANG stocks in that it has been in the crosshairs of U.S. regulators for years.

Primarily, Facebook been the focus of investigations over privacy and what the company does with its users' data. In fact, it started off 2021 by agreeing to pay $650 million to settle a 2015 lawsuit over the alleged unauthorized creation of images gathered from its facial recognition technology.

Much more recently, the personal data of more than 500 million Facebook users was posted online. This information, gained in a 2019 hack, previously was made available to hackers, but the new posting makes it much easier to use.

The specter of antitrust actions always looms over Facebook's head, too. Sen. Elizabeth Warren's campaign included vows to break up big tech, with Facebook (and its Instagram and WhatsApp subsidiaries) among the top targets. Warren lost her presidential bid, of course, but her party won the White House and controls both chambers of Congress. This issue won't disappear anytime soon.

"Facebook always seems to face regulatory risk, and with the recent political regime change, those risks could be elevated in 2021; especially if those regulations limit the application and collection of user and usage data," says Chris Osmond, CFP, CIO at Prime Capital Investment Advisors. "Additionally, should stricter antitrust rules emerge, Facebook could experience acquisition restrictions. Facebook's user data utilization falls under even more scrutiny."

If that's not enough to make Facebook investors a little tense, there's also the continuing problem of millennials and younger users abandoning the platform for "cooler" social media hangouts like TikTok. Then there's the move by Apple to restrict access to user data on iOS – a move that will hit Facebook ad revenue on the platform.

Facebook is playing a fierce game of problem whack-a-mole in response.

Late last year, the company launched Instagram Reels, a short video sharing feature designed to compete against TikTok. It also took out full-page ads and launched a website decrying Apple's latest actions.

However, FB's primary strategy in terms of regulatory challenges has been to play defense. CEO Mark Zuckerberg has made appearances before various committees to defend the company's actions. He also has made frequent announcements about changes to Facebook services in reaction to events – for instance, earlier this year, Facebook stopped recommending political groups in users' News Feeds.

• Market value: $1.6 trillion
• 2020 total return: 76.3%

The pandemic was a disaster for many companies, but some seemed purposefully designed to thrive in the conditions. Largely speaking, and even among the FAANG stocks, few were in a better position to profit from it than Amazon.com (AMZN, $3,161.00).

Stores shut down and people in lockdown? No problem. Amazon was there to pick up the slack with a massive online shopping presence, backed by an extensive distribution and delivery network. Business was up so much that Amazon went on one of the country's biggest hiring sprees. With bored consumers turning to streaming video and online gaming for entertainment and remote workers using Zoom (ZOOM) and other video chat for meetings, Amazon Web Services (AWS) – the world's largest cloud computing provider – was there to provide the extra bandwidth.

But it'll be difficult for AMZN to repeat its monster 2020 return.

There's the question of what happens to Amazon's e-commerce sales as the vaccine rollout continues and people begin to visit more brick-and-mortar locations. Prime Capital's Chris Osmond acknowledges this might have an impact on Amazon's sales, but sees it as a short-term concern:

"It's not unfathomable to envision consumers wanting to flock back to brick-and-mortar retail stores once restrictions are lifted," he says. "However, that could very well be more of a transitory trend; only placing relatively short-term pressure on AMZN."

But Amazon also continues to face antitrust investigations in the European Union, where AMZN is accused of unfairly competing against third-party marketplace sellers on its platform. It also faced a domestic antitrust investigation centered around its AWS platform in 2019. (Amazon Web Services generates the lion's share of Amazon's operating profit, so anything threatening this service is worth watching.)

Amazon's response to antitrust challenges has primarily been to deny and defend against accusations. But soon, it will be doing so with a new voice. Company founder and CEO Jeff Bezos will step down in the third quarter, with longtime AWS leader Andy Jassy taking over as CEO.

• Market value: $2.1 trillion
• 2020 total return: 82.3%

Apple (AAPL, $123.00) took the crown among FAANG stocks in 2020 with an impressive 82%-plus total return.

It too faces a few hills in 2021.

We'll start with Apple's fight against Epic Games over Apple's cut of Fortnite revenue, which led to Apple blocking the popular game and any updates to installed iOS versions through the App Store in 2020. A court battle with Epic over App Store fees is expected to go to trial in May. A potential Department of Justice probe also looms. A loss here could have far-reaching consequences for Apple's lucrative App Store revenue.

The DoJ also is investigating the company's "Sign in With Apple" button on iOS and macOS. Specifically, it's looking into concerns that this button discriminates against other phone makers.

Apple also continues to face lawsuits from consumer associations in several European countries over the "planned obsolescence" issue that saw the company throttle performance on older iPhones. And as mentioned before, Facebook is going after Apple for planned changes to iOS that would make it more difficult to track users across apps.

What has the company been doing to defend against these threats?

In November, Apple tried to reduce the App Store pressure by announcing it would halve its cut for apps and services with less than $1 million in sales to 15%. Apple also is doubling down on privacy, making it a key selling point of iOS 14, which will be released in the fall. Indeed, Apple CEO Tim Cook has been on the offensive, trash-talking Facebook's business model. Speaking at a January conference, Cook didn't name Facebook specifically, but his target was clear:

"If a business is built on misleading users, on data exploitation, on choices that are no choices at all, it does not deserve our praise. It deserves reform."

While you can expect Apple's legal team to be spending a lot of time in the courts – in both the U.S. and Europe – in 2021, not all of Apple's issues are legal in nature.

One that particularly stands out is the FAANG stock's foray into streaming with Apple TV+, which has so far failed to get the subscriber count Apple was hoping for.

In January, Apple announced that free trials of Apple TV+ would be extended until July 2021 and paying customers would be credited for their payment from February through July. The company is hoping the free access and a continued investment in original content will eventually get users hooked and convince them to start paying.

Want to learn more about what will drive Apple stock in 2021? Be sure to check out our feature.

• Market value: $238.9 billion
• 2020 total return: 67.1%

Like Amazon, Netflix (NFLX, $539.42) found itself to have a perfect business model for a pandemic. A demand for at-home entertainment resulted in an unexpected subscriber boost; in the first six months of 2020, that amounted to an additional 25 million new subscribers.

However, Netflix finds itself in challenging times.

After the stellar start to 2020, subscriber additions fell to four-year lows in Q3 2020. During the fourth quarter, Netflix added 8.5 million subscribers – better than analysts expected, but a 3% decline in additions from the year-ago quarter.

Pandemic lockdowns easing will be problematic, but more so just given the glut of competition that has entered the fray over the past couple years. Name a media company, and it probably has its own video streaming service now. The most notable addition of late was Walt Disney's (DIS) November 2019 launch of Disney+. At the time, Disney aimed to reach 60 million to 90 million subscribers by 2024. Several weeks ago, the company announced that Disney+ was already at 94.9 million.

The dramatic increase in competition means media companies like Disney have been pulling content from Netflix to become exclusives on their own services. Chris Osmond points out the dual effect of the fading pandemic and increased competition.

"In an attempt to retain and capture new subscribers, NFLX is spending billions of dollars on original content creation," he says. "Unknown is the impact on NFLX earnings in 2021, particularly in the second half of the year when the strict COVID mandates are expected to ease.

"So much is unknown surrounding consumer behavior once restrictions are lifted, and should consumers spend their time and dollars outside of the home, NFLX could experience shrinking margins. With the global rollout of Disney+ and launches of Peacock and HBO Max, NFLX also faces significant increased competition for subscriber dollars."

Netflix also faces tax issues abroad, says Pitt Capital's Daniel Eye. For example, the government of Canada is expected to begin charging either the Goods and Services Tax (GST, 5%) or Harmonized Sales Tax (HST, 13% to 15%) for Netflix. Either way, this means additional cost to Netflix (even if it collects the tax from customers instead of absorbing it).

Here, NFLX doesn't have many other answers other than raising prices (which it did in December) and continuing to spend big on original content.

• Market value: $1.4 trillion
• 2020 total return: 31.0%

Finally, it's time to look at Google parent Alphabet (GOOGL, $2,129.78). Of the FAANG stocks, Google delivered the smallest return in 2020.

But it has had the most success in 2021, up 22% versus single-digit gains and even losses for the rest of the FAANGs.

Alphabet has had a few technological challenges of late. For instance, while its Pixel smartphones quickly gained a reputation for their high-quality cameras shortly after 2016 launch, the phones have failed to sell in any great number, and competitors like Apple's iPhone have closed the camera app. Google switched from flagship to mid-range models, and now Pixel smartphones receive more red marks for their quality and lack of horsepower.

The Pixel 6 is expected this October. What's not known is whether Google will go even further downmarket and cut prices in an attempt to sell more units, or go back to trying to out-innovate Apple.

And while the company's streaming game service, Stadia, should have had a shining moment in 2020, it didn't. Stadia, which launched in November 2019, promised a high-end PC gaming experience on virtually any connected device, with Google's servers doing all the heavy processing. And yet 15 months later, on Feb. 1, Google announced it was shutting down its in-house Stadia game development studio, casting doubt on its commitment to Stadia and the game streaming service's future. Now, 2021 is shaping up to be a make-or-break year for the service.

But without a doubt, Google's single largest hurdle to overcome in 2021 will be ongoing antitrust investigations around its dominance of internet search.

In 2019, Google's use of search to promote paid advertising earned it $9.2 billion in fines from the EU for violating antitrust regulations. Similar investigations have been ongoing in Google's home territory. In the latest development, a bipartisan group of 38 state attorneys-general launched an antitrust suit in December. This was the third such suit filed against Google in a year.

The company's response has been blog posts defending its operation, aimed at consumers. In response to the December suit, Google's director of public policy wrote:

"To get more specifically to the issues raised in today's lawsuit: it suggests we shouldn't have worked to make Search better and that we should, in fact, be less useful to you."

Ultimately, the courts will decide Google's fate. Expect Google's legal team to be busy in 2021.

Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), is known as perhaps the greatest value investor of all time, but that doesn't mean he has no use for growth stocks.

On the contrary, Buffett has even recently participated in the initial public offering of a red-hot technology stock. The Oracle of Omaha surprised pretty much everyone when Berkshire bought shares in Snowflake (SNOW) as the software firm executed the largest software IPO ever in mid-September.

But while Snowflake does represent an unusual purchase for Buffett's holding company, it's hardly his only growth play. The Berkshire Hathaway equity portfolio is, in fact, teeming with growth stocks. Its single-largest holding is a high-performance tech equity, and another blue-chip name Buffett has held for more than 50 years is a growth stock. The designation applies to a host of other holdings, too.

Given that growth has been outperforming value for roughly a decade now, it's worthwhile to suss out the best of Warren Buffett's growth stocks. Read on as we look at Berkshire's top growth holdings based on analysts' long-term earnings expectations, which range from anywhere between about 9% and more than 40% annually.

Price and analyst info as of Sept. 21. Analyst info courtesy of S&P Capital IQ. Holding value and % of portfolio is based off the Berkshire Hathaway 13F filed Aug. 14, for the second quarter ended June 30, and WhaleWisdom data.

• Shares held: 14.2 million
• Holding value: $1.4 billion*
• Percent of portfolio: N/A
• Analysts' average recommendation: Sell
• Analysts' average LT earnings growth rate: N/A

Snowflake (SNOW, $228.85) is a rarity among Berkshire Hathaway stocks in that Warren Buffett & Co. actually bought shares by way of the company's initial public offering in mid-September.

"In 54 years, I don't think Berkshire Hathaway has ever bought a new issue," Buffett told CNBC ahead of the IPO, which raised $3.4 billion in the largest ever software offering.

SNOW, which offers a way for companies to run their software on various cloud platforms, be they provided by Amazon.com, Microsoft (MSFT) or Google parent Alphabet (GOOGL), has "hot growth stock" written all over it. Indeed, shares more than doubled in the first day of trading.

Given Buffett's general aversion to technology stocks, the SNOW investment was likely the idea of one of his subalterns, Ted Weschler or Todd Combs. Buffett has made his ardor for Amazon.com and Apple clear, but that's because of their prowess in retail more than technology.

Snowflake has no long-term consensus earnings growth estimate yet. It's too new. In fact, only one analyst tracked by S&P Capital IQ covers SNOW, and that lone analyst has a Sell rating on shares. But the company still clearly has massive growth potential given estimates for revenues to more than double to $574.30 million in 2021, then jump another 67% annually to reach $2.7 billion by 2024.

Along the same lines is StoneCo (STNE), the Brazilian financial payments play that Berkshire has owned since late 2018. While Wall Street on average expects a 30.6% profit growth rate through 2023, the lack of growth estimates a couple years further out leaves STNE without a composite long-term average, unlike the rest of the stocks you'll read about. Still, it's clear the pros see exciting things for StoneCo going forward.

* Based on the Sept. 21 closing price of $228.85 per share.

• Shares held: 20.9 million
• Holding value: $563.6 million
• Percent of portfolio: 0.28%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 8.9%

Warren Buffett is the farthest thing from a gold bug. "It doesn't do anything but sit there and look at you," he's been known to say. But investing in gold isn't exactly the same thing as investing in a gold miner such as Barrick Gold (GOLD, $28.19).

True, mining stocks are sensitive to the price of whatever commodity they are digging out of the ground. But at least they produce something, as in cash flow. In the case of Barrick, it even pays a small dividend.

Besides, Barrick has more going for it than gold. It also mines copper, which is used in just about everything. As such, it's a bet on a return to global growth.

Although it is engaged in the mining of the "barbarous relic," GOLD is included in more than a dozen growth indices and has a long-term growth forecast of 8.9% annually, according to S&P Capital IQ.

• Shares held: 24.7 million
• Holding value: $6.8 billion
• Percent of portfolio: 3.3%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 9.0%

Moody's (MCO, $280.04) is a business and financial services firm best known for its Moody's Investors Service credit rating arm – one of the three major American business credit ratings agencies alongside Standard & Poor's and Fitch Ratings.

Additionally, it offers financial analysis technology via Moody's Analytics, and it's expected to deliver a pretty good long-term growth rate as well. Analysts polled by S&P Capital IQ project MCO to produce average annual earnings growth of 9%.

"We remain confident in Moody's earnings growth drivers (favorable secular drivers, pricing power, emerging market growth, GDP-driven issuance, and improving margins)," write William Blair analysts, who rate MCO at Outperform (equivalent of Buy).

MCO is a longtime, significant holding in the Berkshire Hathaway equity portfolio. Indeed, at more than 3% of the Berkshire Hathaway portfolio, Moody's is a top-10 Buffett stock.

• Shares held: 4.3 million
• Holding value: $1.3 billion
• Percent of portfolio: 0.65%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 9.3%

Not many brick-and-mortar retailers can claim a long-term growth forecast of 9.3%, but Costco (COST, $339.57) isn't just any retailer. In fact, the company has boasted double-digit year-over-year comparable-store sales growth for several months on end now.

And unlike many Buffett growth stocks, the Oracle is happy to talk about the warehouse club.

"Here (Kraft Heinz is), 100 years plus, tons of advertising, built into people's habits and everything else," Warren Buffett told CNBC in a February 2019 interview. "And now, (Costco's) Kirkland, a private-label brand, comes along and with only 250 or so outlets, does 50% more business than all the Kraft Heinz brands."

Indeed, Costco's Kirkland store-branded products are one of the warehouse retailer's biggest draws.

Costco is not a particularly large holding, at 0.65% of the Berkshire Hathaway portfolio, but it seems to be a cherished one.

• Shares held: 151.6 million
• Holding value: $14.4 billion
• Percent of portfolio: 7.1%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 10.2%

Buffett likes to say this his preferred holding period is "forever." Look no further than Dow component American Express (AXP, $98.17) to understand just how serious he is about investing for the long haul.

Berkshire entered its initial stake in the credit card company in 1963, when a struggling AmEx badly needed capital. Buffett obliged, getting favorable terms on his investment. He has played the role of white knight many times over the years, including during the 2008 financial crisis, as a means to get stakes in good companies at a discount.

Berkshire Hathaway, which owns 18.8% of American Express' shares outstanding, is by far the company's largest shareholder. (No. 2 Vanguard owns 6.0%.) Buffett praised the power of AmEx's brand at Berkshire's 2019 annual meeting: "It's a fantastic story, and I'm glad we own 18% of it," he said at the time.

As for growth: The pros are looking for double-digit earnings expansion over the next three to five years, according to S&P Capital IQ.

• Shares held: 980.6 million
• Holding value: $89.4 billion
• Percent of portfolio: 43.9%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 11.5%

"I don't think of Apple as a stock. I think of it as our third business."

That's one of the many songs of praise Buffett has belted out for Apple (AAPL, $110.08), which is the undisputed king of the Buffett stocks. Shares in the nearly $2 trillion company now make up nearly 44% of the Berkshire Hathaway portfolio's value – its single largest holding, and it's not even close.

The Oracle of Omaha has only occasionally dabbled in technology stocks. But he bought Apple with two fists, and he's more than happy to discuss his ardor for AAPL. As he has said more than once on CNBC, he loves the power of Apple's brand and its ecosystem of products (such as the iPhone and iPad) and services (such as Apple Pay and iTunes).

"It's probably the best business I know in the world," Buffett said in February. "And that is a bigger commitment that we have in any business except insurance and the railroad."

Perhaps most incredible, even with a market value of almost $2 trillion, analysts still forecast AAPL to deliver average annual earnings growth of 11.5% over the next three to five years. That puts it among the best growth stocks in Berkshire's repertoire.

• Shares held: 9.9 million
• Holding value: $1.9 billion
• Percent of portfolio: 0.95%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 14.5%

Visa (V, $197.45) operates the world's largest payments network, and thus is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Like Mastercard, Visa was the idea of lieutenants Todd Combs and/or Ted Weschler (Buffett won't tell). And like Mastercard, Buffett wishes Berkshire had bought more.

No doubt the company's expected long-term growth rate of 14.5% adds to its appeal.

Berkshire Hathaway first bought Visa in the third quarter of 2011, and it has proven to be a mammoth winner. Including dividends, Visa stock has delivered an annualized return of more than 28%.

"If I had been as smart as Ted or Todd, I would have (bought Visa)," Buffett told shareholders at the 2018 annual meeting.

The Visa stake is a modest but not insignificant holding at roughly 1% of Buffett's portfolio. However, Berkshire's half-percent stake in Visa doesn't even put it among the top 25 investors.

• Shares held: 50 million
• Holding value: $293.5 million
• Percent of portfolio: 0.14%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 15.1%

Sirius XM (SIRI, $5.11) – a company that reaches more than 100 million listeners via its core satellite radio business and Pandora, which it acquired in 2018 – has an eye-opening long-term growth forecast of 15.1%.

Buffett first bought shares in SIRI during the final quarter of 2016, but his affinity for the position has been waning of late.

Berkshire sold a small portion (1%) of its Sirius XM position during the third quarter. The Oracle of Omaha then trimmed his position by another 3.9 million shares, or about 2% of Berkshire's stake, in Q1 2020.

Berkshire Hathaway really took out the hatchet during this year's second quarter, however, unloading more than 82 million shares, or 62% of the remaining stake. That brings its ownership down from 3% to a little more than 1%. But that still makes Buffett the fourth-largest owner of SIRI stock, but well behind majority shareholder Liberty Global's (LBTYA) 72% stake.

• Shares held: 20.1 million
• Holding value: $446 million
• Percent of portfolio: 0.22%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 17.5%

Synchrony Financial (SYF, $25.90) jibes with Buffett's affection for credit-card companies, which, as a group, are high-growth names.

A major issuer of charge cards for retailers, Synchrony was spun off of GE Capital in 2014. It's both a lender and a payments processor – like Buffett's beloved American Express – but it caters to customers who skew more toward the middle and lower end of the income scale.

Analysts project the company to generate average annual earnings growth of 17.5% over the next three to five years, according to a survey by S&P Capital IQ.

Interestingly, Buffett trimmed 3% of his stake in Q1 but left it alone in the second quarter, despite cutting a number of other financial-stock holdings. He now owns 3.4% of Synchrony Financial's shares outstanding, which makes him the firm's seventh-largest shareholder.

• Shares held: 1.7 million
• Holding value: $425.2 million
• Percent of portfolio: 0.21%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 18.2%

Warren Buffett, who already is positioned in home furnishings retail via its Nebraska Furniture Mart subsidiary, added more exposure to the space with his Q3 2019 entry into RH (RH, $313.97).

RH, formerly known as Restoration Hardware, operates 107 retail and outlet stores across the U.S. and Canada. It also owns Waterworks, a high-end bath-and-kitchen retailer with 15 showrooms. Not unlike Costco, RH has a hot growth rate for a brick-and-mortar retailer. Indeed, analysts' projected long-term growth rate stands at 18.2%.

Buffett typically doesn't comment on Berkshire Hathaway's holdings, and that's true for RH, so it's not certain exactly what attracted the Oracle of Omaha. It is possible this was a move made by Buffett lieutenant Ted Weschler or Todd Combs. But the stake fits broadly with Buffett's worldview. Buffett stocks tend to be bets on America's growth, which is exactly what a bet on housing and housing-related industries is.

Berkshire is now the fourth-largest investor in the home retailer by virtue of owning about 8.9% of all RH shares outstanding.

• Shares held: 4.6 million
• Holding value: $1.4 billion
• Percent of portfolio: 0.66%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 18.5%

Warren Buffett gives credit where credit is due. While Berkshire Hathaway does indeed own Mastercard (MA, $327.85), he has nodded to his portfolio managers Todd Combs and Ted Weschler, and said he wishes he had pulled the trigger on the opportunity earlier.

"I could have bought them as well, and looking back, I should have," Buffett said about Visa and Mastercard in 2018, referring to his own investment in American Express.

Mastercard, which boasts 926 million cards in use across the world, is one of several growth stocks in the payment processing industry under the Berkshire umbrella. However, after mostly leaving the stock alone since entering a position during the first quarter of 2011, Buffett sold off 300,000 shares, or 7% of the stake, in Q2 2020.

No one knows why Berkshire trimmed its position, but presumably it wasn't because of Mastercard's growth prospects. Analysts' long-term growth forecast sits at 18.5%, according to S&P Capital IQ.

• Shares held: 533,300
• Holding value: $1.5 billion
• Percent of portfolio: 0.72%
• Analysts' average recommendation: Strong Buy
• Analysts' average LT earnings growth rate: 33.1%

Amazon.com (AMZN, $2,960.47) has been one of the most electric blue chips of 2020, as well as one of the splashiest recent additions to the Berkshire Hathaway portfolio. And with a long-term growth forecast of 33.1%, it's fair to assume that AMZN will continue on its electrifying ways.

The holding company disclosed its 483,300-share position after the first quarter of 2019, then added another 54,000 shares the next quarter.

Amazon wasn't Buffett's idea, by his own admission. Before Berkshire Hathaway submitted its first-quarter regulatory filing with the Securities and Exchange Commission, Buffett told CNBC: "One of the fellows in the office that manage money ... bought some Amazon, so it will show up (when that file is submitted)."

Buffett has long been an admirer of Amazon CEO Jeff Bezos, he admitted in an interview, and said he wished he'd bought the stock sooner. "Yeah, I've been a fan, and I've been an idiot for not buying (AMZN shares)," Buffett told CNBC.

• Shares held: 5.2 million
• Holding value: $2.7 billion
• Percent of portfolio: 1.3%
• Analysts' average recommendation: Buy
• Analysts' average LT earnings growth rate: 41.4%

Charter Communications (CHTR, $614.34) markets cable TV, internet, telephone and other services under the Spectrum brand, which is America's second-largest cable operator behind Comcast (CMCSA). It greatly expanded its reach in 2016 when it acquired Time Warner Cable and sister company Bright House Networks.

Buffett entered CHTR in the second quarter of 2014, but he has seemingly lost his love for the telecom company in recent years. His position has been trimmed down from 9.4 million shares in early 2017 to just 5.2 million shares as of Berkshire's most recent 13F, including a 210,000-share reduction in Q2 2020.

Certainly, Wall Street's long-term growth forecast wasn't a deciding factor in why Buffett trimmed his stake. Indeed, CHTR is the best growth stock Berkshire holds, according to an average annual growth forecast of 41.4% over the next three to five years.

Berkshire Hathaway's remaining stake represents 1.3% of its holdings, and a decent-sized 2.5% ownership in Charter.

Cloud infrastructure unicorn Snowflake (SNOW) just executed a blockbuster initial public offering (IPO), and one of the beneficiaries is an unlikely investor.

Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), has never been a fan of IPOs. He's said so, on the record, and has notably turned up his nose at some of the most heavily hyped stock market debuts.

Furthermore, despite Apple (AAPL) being Berkshire Hathaway's single largest holding, Buffett has never really been all-in on technology stocks.

Yet he finds himself with a piece of the Snowflake IPO, which is the biggest software offering in history.

About the Snowflake IPO

Snowflake is a cloud-data warehousing company that plays in a roughly $55 billion annual market – a market that's expanding. The firm boasts 3,100 customers, 56 of which were each responsible for generating around $1 million in revenues within a 12-month period.

Snowflake is generating a lot of hype because it offers a way for companies to run their software on various cloud platforms, be they provided by Amazon.com (AMZN), Microsoft (MSFT) or Google parent Alphabet (GOOGL), to name just three.

As for the offering itself: Snowflake priced 28 million shares (listed under the ticker "SNOW" on the New York Stock Exchange) at $120 a share Tuesday night. That gives the company a market value of $33.3 billion – about as large as Capital One Financial (COF), Sysco (SYY) or MetLife (MET).

The deal raised $3.4 billion – not just the largest software offering ever, but also the biggest IPO period since Uber Technologies (UBER) raised $8.1 billion in May 2019.

Here's where Warren Buffett comes in:

Berkshire Hathaway agreed to buy $250 million in Snowflake stock in a private placement at the IPO price of $120 a share; cloud firm Salesforce.com (CRM) made a similar arrangement with Snowflake. The holding company also agreed to buy 4 million shares at the IPO price from Snowflake's former CEO Robert Muglia in a secondary transaction.

The bottom line? Berkshire Hathaway owned a $730 million stake in Snowflake before shares began trading Wednesday on the New York Stock Exchange.

It's a bet that's immediately paying off, too. Shares more than doubled when they finally started trading.

An Uncommon Buffett Investment

Investing in an IPO in this manner is essentially unprecedented in the history of the Berkshire Hathaway equity portfolio. Buffett notably skipped out on Uber's IPO last year.

"In 54 years, I don't think Berkshire Hathaway has ever bought a new issue," Buffett told CNBC at the time. "The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that's going to be better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn't make any sense."

True, Warren Buffett's Berkshire Hathaway owned 14.2 million shares, or 8%, of all StoneCo (STNE) stock when the Brazilian financial technology company went public in 2018. But backing a company that later has an IPO isn't exactly the same thing as investing in a new issue as part of its process of going public.

Given Buffett's general aversion to technology stocks, the SNOW investment was likely the idea of one of his subalterns, Ted Weschler or Todd Combs. Buffett has made his ardor for Amazon.com and Apple clear, but that's because of their prowess in retail more than technology.

SNOW, meanwhile, as a cloud-infrastructure company, is about as "techy" as they come. The software firm also happens to offer a unique angle for those looking for a pure-play bet on the impressive growth of cloud services.

Regardless of where SNOW shares trade in the near term, Berkshire Hathaway's stake will still represent just a tiny part of its equity portfolio, accounting for perhaps 0.75% of its total holdings.

But it's an interesting bet nonetheless, and one that bears watching over the quarters ahead to see if Berkshire Hathaway adds to its position.

It’s no secret that large technology firms have led the way for much of the bull market. By now, every investor knows that FANG stands for Facebook, Amazon.com, Netflix and Google (although Google is now Alphabet). From the beginning of the bull market in 2009 through 2018, tech stocks in the large-company Standard & Poor’s 500-stock index edged out tech stocks in the small-cap S&P SmallCap 600 by a half-percentage point per year, on average. In 2019, Big Tech pulled in front big time, returning 50.3%, compared with 39.6% for small-tech firms.

But small tech firms may be poised to close the gap, says Jim Paulsen, chief investment strategist at market research firm Leuthold Group. The “mini FANGs” (as he likes to call them) are currently trading at about the same valuation as big tech names, when small fries have historically commanded a premium. And analysts estimate that over the next three to five years, profits for the small tech stocks will increase at twice the rate of big-tech earnings.

Although small stocks tend to come with more volatility than large ones, small tech firms will largely avoid some of the risks tied to the tech behemoths. “These firms aren’t in the crosshairs of regulators over privacy or antitrust issues,” he says. Paulsen recommends shifting as much as 50% of whatever you have allocated to tech stocks into smaller names.

Here are six ways to do that.

Prices, returns and other data are through December 31. Annual revenue figures are based on analyst estimates for calendar year 2019. Sources: Morningstar Inc., Zacks.

• Symbol: PSCT
• Share price: $96
• Expense ratio: 0.29%
• 1-year annualized return: 39.2%
• 3-year annualized return: 11.7%

For broad exposure, consider Invesco S&P SmallCap Information Technology ETF. The fund invests in a portfolio of 80 stocks weighted by average market capitalization (share price times shares outstanding), with the average stock clocking in at $1.9 billion. Top holdings include network testing equipment maker Viavi Solutions, energy resource management company Itron, and Brooks Automation, which provides materials and services primarily to the semiconductor industry.

• Symbol: USSCX
• Share price: --
• Expense ratio: 1.02%
• 1-year annualized return: 37.8%
• 3-year annualized return: 21.5%

Mutual fund investors won’t find any pure plays on small-cap tech stocks, though they can invest in funds that tilt heavily in their direction. Among technology sector funds, USAA Science & Technology Fund has relatively limited exposure to giant firms, holding only 44% of assets in large caps, compared with a 70% stake for its average peer. The fund’s 25% allocation to pint-size firms may seem scant, but compared with the 6% holding among peer funds, it’s a big bet on the little guys. Management of the fund is split between teams at Victory Capital (who manage roughly two-thirds of assets) and Wellington Capital Management. The Victory team screens for stocks with sustainable earnings growth, high returns on capital and improving profit margins, before homing in on stocks with niche businesses and excellent management teams. Wellington’s team scours the globe for fast-growing, high-quality firms with market-leading innovations.

Tech names currently predominate, followed by health care firms; 17% of assets are in foreign firms. Top small-cap tech holdings include communications software firm RingCentral and semiconductor manufacturer Macom Technology Solutions. The fund has bested its average peer in seven of the past 10 calendar years, with a 16.6% annualized return that beats the average tech fund by 1.4 percentage points. Over that period, USAA Science & Tech was 11% less volatile than rival funds, on average.

• Symbol: DFDSX
• Share price: --
• Expense ratio: 1.05%
• 1-year annualized return: 36.3%
• 3-year annualized return: 15.8%
• DF Dent Small Cap Growth allocates 40% of assets to tech stocks, compared with a 17% average holding among funds that invest in small-company stocks. A focus on fast-growing, innovative firms accounts for the bias toward tech, says comanager Gary Wu. He and comanager Matthew Dent favor firms with a dominant position in a niche market, ample or growing amounts of cash, and a management team that allocates capital wisely and with shareholder interests in mind. The managers also value “sticky” businesses, ones that tend to retain customers. As a result, the fund holds a number of makers of what Wu calls “mission critical” software—tech that massively improves the business that adopts it, becoming essential and embedded in its operations.

The fund doesn’t have a long track record, but since its November 2013 debut, Small Cap Growth returned an annualized 11.5%, 1.7 percentage points ahead of the S&P SmallCap 600 and better than 93% of small-cap mutual funds.

Investors with a high tolerance for risk who want to capitalize on one of the fastest-growing trends in tech might consider the stock of firms offering their products and services via the internet—in other words, in the proverbial cloud. Technology research firm Gartner expects annual cloud revenues worldwide to reach $355 billion in 2022, up from $228 billion in 2019. Among the most promising next-generation cloud companies are so-called software-as-a-service firms.

These companies have revamped the old model of providing services through software with a renewable licensing fee. Rather, customers pay a subscription fee to access software in the cloud. Such a model is attractive because it creates a steady, predictable revenue stream with fewer fluctuations in customer demand, allowing execs to invest efficiently in expanding the business. Because customers typically sign long-term agreements and fully integrate the software into their businesses, they tend to stick around.

Though companies such as Salesforce.com and Workday have become well-known names, the shift to doing business in the cloud is still nascent. The three small, fast-growing companies below are well positioned to grow along with the cloud. Because these fledglings lack a consistent record of profitability so far, they’re best suited for long-term investors comfortable with more-speculative holdings. But all have records of prodigious revenue growth and have the potential to deliver market-beating returns over the next few years.

• Symbol: BL
• Share price: $52
• Expense ratio: --
• 1-year annualized return: 25.9%
• 3-year annualized return: 23.1%
• Annual revenue: $287 million
• BlackLine is aiming to revolutionize the way companies keep their books with software that automates and streamlines the financial and accounting practices that go into the closing process at the end of each accounting period. The market for such services amounts to some $18.5 billion in annual revenue, according to market research firm and consultancy Frost & Sullivan. BlackLine’s estimated $285 million in 2019 revenue is a mere nibble out of a huge pie, yet the firm, which began trading publicly only in 2016, is nonetheless a leading player in the industry, with best-in-class features and functionality, says DF Dent’s Gary Wu.

Shares sit below their September 2018 high due to investor concerns over slowing sales growth. But the slowdown was at least partially by design, says Wu. Rather than shooting for hyperexpansion, BlackLine spent the past two years building out the firm’s team that helps customers with implementing the software. With a revamped team in place, Wu expects sales growth to pick back up in 2020.

Measured by generally accepted accounting principles, BlackLine has no earnings to speak of, and by the firm’s own (non-GAAP) accounting, profits are meager. That makes the stock, by both standards, expensive. But BlackLine trades at an enterprise value (generally thought of as what it would cost to buy a company outright) that is 7.7 times estimated 2020 revenues, according to analysts at investment firm William Blair. That’s a discount to rival firms, which trade at a median multiple of 9.6, they say. And given BlackLine’s potential to boost sales and expand profit margins at a faster rate than its peers, the stock deserves a “buy” (outperform) rating, they say.

• Symbol: FIVN
• Share price: $66
• 1-year annualized return: 50.0%
• 3-year annualized return: 66.6%
• Annual revenue: $322 million

Whether you contact a business over the phone or use an online chat, people on the other end of those interactions use software to help assist customers. Five9 is a leader in providing such software in the cloud—a business known as contact center as a service. Five9’s technology improves customer experience, for instance, by using artificial intelligence to route customer calls to the most appropriate agent among the available pool.

Five9 estimates that only about 15% of call center agents have converted to the cloud and says the potential market for the industry is $24 billion in annual revenues. That gives Five9 “open-field running for the foreseeable future,” says Jagjit Sahota, an investment analyst at mutual fund firm Wasatch Global Investors. “We think Five9 will be the dominator in this market.”

Five9 has grown at a torrid pace, boosting revenue by an annualized 25% from 2013 through 2018 while steadily improving profitability. The firm’s earnings are still nonexistent, but the annual trend has been solidly in the right direction since Five9 went public in 2014. Sahota believes the company should continue to increase profitability while boosting sales at a robust, mid-20s annual percentage rate over the next three to five years.

• Symbol: RNG
• Share price: $169
• 1-year annualized return: 104.6%
• 3-year annualized return: 101.6%
• Annual revenue: $888 million

If RingCentral has a say, you may soon bid goodbye to your old desktop phone. The firm’s software allows workers to communicate via phone, text, video conference, instant message and more over one web-based platform. RingCentral, which charges a subscription fee per “seat” (each end user, essentially), estimates the company serves 3 million of the 10 million seats that have already migrated to the cloud. But companies providing the old-fashioned model serve some 400 million to 500 million seats. Helping matters for RingCentral is a recently inked agreement with legacy office communications firm Avaya to become the firm’s exclusive cloud software provider, giving RingCentral access to Avaya’s cache of more than 100 million seats.

RingCentral’s stock has jumped 45% since the deal was announced in October, aided by the firm posting better-than-expected third-quarter results (though profits are still in the red by traditional accounting standards). Wall Street is underestimating the impact of the deal, which could spark 31% annual growth in subscription revenue through 2023, to $2.4 billion, says Jefferies analyst Samad Samana. RingCentral is Samana’s contribution to Jefferies’ “Franchise Pick” list—the buy-rated stocks the firm’s analysts are most bullish on.

Every company faces headwinds at some point. Even the bluest of blue-chip stocks must tackle a serious threat from time to time.

Dangers can come from anywhere. They can be industrial accidents such as the 2010 Deepwater Horizon oil spill that cost BP plc (BP) nearly $65 billion in legal fees, settlements and cleanup costs as of 2018. There are technological squabbles, such as Apple’s (AAPL) 2017 patent infringement lawsuit settlement with Nokia, which forced the iPhone maker to pay $2 billion upfront as well as ongoing royalties from iPhone sales. Pfizer (PFE) was weighed down considerably in 2011 as it was about to lose market exclusivity on its blockbuster cholesterol drug Lipitor – this so-called patent cliff is a frequent headwind for pharma stocks.

Some blue chips, such as Apple and Pfizer, take the hit and keep on chugging. Others, like BP, take much longer to recover – if they ever do.

You can get some insight into potential headwinds by reading the “Risk Factors” section of each company’s annual 10-K filing. Companies are required to list, by order of importance, the most significant risks challenging future profits or stock performance. Some risks apply to the entire economy, some to that particular industry and a few are unique to that company.

Here are 13 blue-chip stocks that currently are navigating their way around a landmine or two. This isn’t necessarily a list of stocks to sell, however. Great companies can often overcome major setbacks, and many of these companies are working toward that. But retirees need to be especially aware of forces that threaten substantial shorter-term losses. And even the most ardent bull should acknowledge and understand significant risks – even if they merely set a stock up for a dip-buying situation.

Data is as of June 10. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

• Market value: $499.0 billion
• Dividend yield: N/A
• Facebook (FB, $174.82) disclosed in its first-quarter results that it anticipates paying fines of up to $5 billion to settle lawsuits from federal regulators. The company has been negotiating with the Federal Trade Commission to settle charges that it violated a 2011 consent decree requiring that consumers be provided with “clear and prominent notice” before sharing customer data. Regulators say Facebook violated the agreement by not informing users that it was sharing their data with Cambridge Analytica during the 2016 presidential campaign. The company had set aside $3 billion to cover payment.

Facebook also faces big fines from the European Union under new privacy laws. Regulators in France, Belgium, Germany and Austria may fine Facebook, and its Instagram and WhatsApp services, up to 4% of annual revenues for privacy violations, which could result in additional fines of up to $1.63 billion for each business.

And just this month, Facebook was among four prominent blue-chip stocks in the tech sector – along with Apple, Amazon.com (AMZN) and Google parent Alphabet (GOOGL) – facing potential antitrust scrutiny, according to various media reports.

Facebook’s ability to grow going forward will be tied to just how well it can continue monetizing its 2.7 billion monthly active users – across all its apps, including Instagram, Messenger and WhatsApp – under tighter scrutiny of its privacy and data-use practices. CEO Mark Zuckerberg has some solutions, as he always does, including drawing in more than 3 million advertisers for its Stories visual product.

Legal costs do add up, though. Facebook grew first-quarter revenues 26%, but corporate expenses swelled by 80% because of the funds set aside for a potential lawsuit settlement. That helped drag operating margins down from 46% to 22%, slashing profits by 51% to $2.43 billion.

• Market value: $110.6 billion
• Dividend yield: 2.3%
• Eli Lilly (LLY, $113.93), along with rivals Sanofi (SNY) and Novo Nordisk (NVO), are defendants in class-action lawsuits challenging their insulin pricing practices. These three companies supply most of the world’s insulin.

The suits stem from 2017, when the plaintiffs claimed those companies colluded to boost list prices of insulin, The plaintiffs originally sued the three drugmakers in 2017, alleging they colluded to boost list prices of insulin, which the American Diabetes Association said tripled between 2002 and 2013, and which the nonprofit Health Care Cost Institute says doubled between 2012 and 2016. Some patients with no insurance or large deductibles have been stuck with out-of-pocket costs for insulin as high as $900 per month.

Racketeering charges have been dismissed, but other parts of the lawsuit are moving forward. Commenting recently on insulin pricing, FDA Commissioner Scott Gottlieb said his agency would push for the development of lower-cost biosimilar versions of insulin.

Lilly’s insulin drug (Humalog) is its second-highest revenue generator, accounting for more than $2.9 billion of global sales. Lilly hopes to soften criticism of its pricing by launching a generic version of Humalog that will cost half as much. The new drug (Insulin Lispro) is priced at $137 versus $275 for Humalog.

Goldman Sachs analyst Terence Flynn assigned a “Buy” rating on LLY in late May. He not only praised product cycles in four growing categories, but said Wall Street is sleeping on Lilly’s longer-term potential in diabetes.

• Market value: $55.7 billion
• Dividend yield: 5.2%

German blue-chip Bayer AG (BAYRY, $14.93) unwittingly acquired a potential ticking time bomb when it purchased Monsanto, the maker of Roundup weed killer, in 2018 for $63 billion. Since acquiring Monsanto, Bayer has been hit by thousands of Roundup lawsuits posing risks that have cut its share price by nearly half.

A U.S. jury recently awarded a couple $55 million for pain and suffering and $2 billion in punitive damages after concluding Roundup exposure caused their cancer. This was the third Roundup lawsuit Bayer has lost. The first two resulted in jury awards of $78.5 million and $80 million, respectively.

Bayer plans to challenge the verdicts, based on recent findings by the Environmental Protection Agency that glyphosate, the main ingredient in Roundup, is not a carcinogen.

More than 13,400 plaintiffs have filed Roundup lawsuits in state courts, and a mediator has been appointed to oversee another 900 Roundup lawsuits at the federal level. The next federal Roundup trial has been scheduled for February 2020.

Bayer remains the market leader in agricultural chemicals and a major player in pharmaceuticals, with blockbuster prescription drugs such as Xarelto and Eylea and over-the-counter drugs like Bayer aspirin, Aleve and Claritin. That’s enough to keep analysts interested, despite all the legal uncertainty. The stock has 13 “Buy” or “Overweight” ratings, 11 “Holds” and just one “Sell,” according to The Wall Street Journal. Zacks Research is tracking steadily rising analyst EPS estimates, too, and has upgraded its BAYRY rating to “Strong Buy.”

• Market value: $369.1 billion
• Dividend yield: 2.7%
• Johnson & Johnson (JNJ, $139.02) is the world’s largest health care company and an industry leader in prescription drugs, medical devices and consumer health care. The company owns oncology drugs Darzalex, Imbruvica and Zytiga, as well as immunology drugs Stelara and Tremfya. J&J also is launching a nasal spray for treating depression (Spravato) this year that analysts say eventually could produce $3 billion in annual sales.

Its consumer health product line is robust, too, including household names like Listerine, Band-Aid, Aveeno and Tylenol. But JNJ’s problems actually stem from this division.

The company’s well-known Johnson’s Baby Powder product has become a major drag on earnings. JNJ faces more than 14,000 lawsuits claiming that its talcum baby powder causes cancer, and so far, awards from litigation have been enormous. Last year, a Missouri jury awarded nearly $4.7 billion – nearly 6% of 2018’s full-year revenues – to a group of 22 women last year, and the company suffered a $29.4 million verdict in California this March. JNJ plans to appeal these verdicts but still faces more than a dozen new trials, primarily in California, over the next few months.

The company’s mounting legal costs contributed to a 14% decline in first-quarter earnings per share.

Despite these challenges, JNJ remains one of the best-known Dividend Aristocrats, with 57 consecutive years of dividend growth. And while analysts are mixed on JNJ, the largest number (nine) of 19 covering analysts say it’s buy-worthy. Goldman Sachs started the company at “Buy” in late May, touting its diversified portfolio and low exposure to Medicare/Medicaid, which should make it less vulnerable to policy arguments heading into 2020 elections.

• Market value: $208.0 billion
• Dividend yield: 3.9%

Once considered America’s most valuable bank brand, serving one in three U.S. households, Wells Fargo (WFC, $46.27) now has a tarnished reputation after opening millions of fraudulent accounts, allowing illegal lending practices and knowingly selling sub-standard mortgages. The bank recently paid shareholders $240 million to settle a lawsuit over millions of bogus customer accounts created to boost performance metrics. Wells Fargo has already paid $160 million in government fines and a settlement of $480 million to institutional investors over the fake accounts and expects to pay out $2.7 billion more, exceeding previous estimates.

In addition to a substantial fine, the Federal Reserve restricted the bank’s growth by imposing a cap on assets. This cap will remain in place under Fed officials are convinced the bank’s governance and internal controls have improved.

Over the past two years, Wells Fargo has closed hundreds of branches and decided to cut more than 26,000 employees. This year, WFC shares are barely above breakeven while blue-chip bank stocks such as Bank of America (BAC, +13.9%) and Citigroup (C, +28.9%) have soared. Analysts have soured on the stock, with 15 of 31 covering Wells Fargo calling it a “Hold,” and another four in the “Sell” camp.

Goldman Sachs’ Richard Ramsden was one of several analysts to downgrade the stock in April following Wells Fargo’s first-quarter earnings report, citing lower guidance for net interest income and the sudden departure of CEO Tim Sloan.

• Market value: $233.7 billion
• Dividend yield: 3.1%

Swiss drugmaker Roche Holdings (RHHBY, $34.22) is taking a steep dive off the patent cliff with three of its top-selling drugs (Rituxan, Herceptin and Avastin) all on target to lose patent exclusivity during the second half of 2019. These oncology drugs accounted for $18.8 billion and 43% of the company’s revenues last year.

Roche has dominated the cancer drug market since 2002 largely thanks to its Genentech acquisition, but faces increased competition as some of its key drugs decline and rivals such as Bristol-Myers Squibb (BMY) battle for share. Market research firm EvaluatePharma projects a 12% decline in revenues from Roche’s cancer franchise over the next six years, even as the overall cancer drug market is poised to double in size.

The company is counting on new drugs in non-oncology areas to help close the revenue gap. One such drug is multiple sclerosis treatment Ocrevus, which analysts expect eventually will generate $5 billion in peak annual sales. Roche is also utilizing M&A to build its presence in new disease areas. Its planned purchase of Spark Therapeutics, a leader in gene therapies, will help Roche build a major presence in hemophilia treatments.

Analyst appear optimistic that Roche will be able to replace revenues lost from expiring drugs with sales of new drugs. The consensus rating among the 22 analysts following RHHBY is “Buy,” and their consensus estimates are for low-single-digit sales and EPS growth this year.

• Market value: $41.5 billion
• Dividend yield: 2.3%

Drugmaker Allergan (AGN, $126.61) tried to extend the patent life of its blockbuster eye drug Restasis – at $1.2 billion in 2018, it’s Allergan’s second-biggest moneymaker behind wrinkle treatment Botox – by transferring ownership of its patent to an American Indian tribe. Despite this unusual step, a U.S. Appeals Court ruled the company’s patents invalid last year, and the Supreme Court refused to hear the case in April, paving the way for new generic competitors.

Allergan still enjoys strong sales of Botox, which rose 9% in the first quarter and contributed $868 million to revenues. The company also has a clear winner in Vraylar, an antipsychotic that is the fastest-growing branded drug in its category. Vraylar revenues have expanded by double digits every quarter since its launch, including 70% sales growth during Q1 2019. Allergan anticipates launching Vraylar for a new indication (bipolar depression) later this year.

The company has other drugs in the pipeline poised for launch or other important trial dates over the next 18 months, including abicipar (macular degeneration), bimatoprost (glaucoma) and ubrogepant (migraine). It also expects to launch a device – CoolTone, a muscle stimulator – in the second half of 2019.

Allergan recently raised 2019 sales and earnings guidance and expects cash flow to top $5 billion this year, providing ample fodder for share repurchases, dividend growth and acquisitions.

AGN’s expanding pipeline and cash flow generating abilities have the majority of covering analysts optimistic about the stock’s prospects. Allergan is rated “Buy” or “Strong Buy” by 14 analysts and “Hold” by nine. Cantor Fitzgerald analyst Louise Chen – one of the “Holds” – recently called Allergan one of the highest-quality, most innovative companies in the pharmaceutical industry. She is remaining on the sidelines, however, while she looks for improved earnings visibility.

• Market value: $113.8 billion
• Dividend yield: 5.6%
• AbbVie (ABBV, $76.95) is another blue-chip pharma stock and the owner of Humira, the world’s No. 1 selling prescription drug. Humira generated sales of more than $20 billion in 2018, which represented more than half of AbbVie’s revenues.

But Humira’s day is coming. The drug already went off-patent in the European Union last year. The company has fended off eight would-be biosimilar competitors in the U.S., keeping them at bay through 2023. Nonetheless, this is an eventual major threat – one that AbbVie plans to address by building a rich drug pipeline.

The company has big expectations for oncology drugs Imbruvica and Venclexta, which already contribute $4 billion to sales and could surpass $9 billion by 2025. Other top performers are immunology drugs upadacitinib and risankizumab, which may add $10 billion to sales in the next six years. In all, AbbVie anticipates sales of non-Humira drugs rising to $35 billion by 2025, more than offsetting declining Humira sales.

AbbVie’s yearly $4 billion to $5 billion investments in drug R&D are paying off. Research firm EvaluatePharma recently rated its clinical pipeline the second best in the pharma industry. AbbVie has more than 20 new products (or new indications of existing drugs) positioned for a 2020 launch.

AbbVie split from Abbott Laboratories (ABT) in 2013, with both companies keeping the title of Dividend Aristocrat following the breakup. ABBV has kept up the annual payout hikes since then, registering its 47th consecutive year of dividend increases in April with a substantial 35% improvement to 71 cents per share.

Nonetheless, ABBV shares are off more than 16% this year. Most of the losses came in January, when the company announced a $4 billion write-down of an acquisition, then followed that up with disappointing fourth-quarter earnings.

• Market value: $87.6 billion
• Dividend yield: 0.4%

Under a barrage of bad news and mounting debt, General Electric (GE, $10.05) – arguably relegated to former blue-chip status at this point – suffered a meltdown in 2017 that sent its profits and shares plunging. The company is on its third CEO in two years, and it’s working to spin off various units to generate more value.

The next big challenge facing General Electric is its woefully underfunded pension plan. About 70% of GE’s retired and active workers are covered by plans that require funds be set aside for future payments. The company’s workers are guaranteed $92 billion in payments, but the company has set aside only $69 billion to meet its obligations.

General Electric contributed $6 billion to the plan in 2018, which could cover required cash contributions through 2020, but is gambling on a rising stock market. The company’s pension burden increases when the stock market falls, since the value of plan assets shrinks. A prolonged bear market could create major liquidity problems for GE.

However, UBS analyst Peter Lennox-King thinks GE’s pension costs will fall in coming years, boosting EPS as a result. He looks for a $1 billion to $3 billion drop in General Electric’s pension costs by 2020, which could add 29 cents per share to earnings – considerable given consensus estimates for 75 cents. Lennox-King, who rates GE a “Buy,” reasons that the company’s non-ERISA (Employee Retirement Income Security Act of 1974) pension obligations can be funded from current cash flow and don’t require pre-funding.

Indeed, General Electric’s ERISA-based obligation is about 80% funded. The average pension plan across the Standard & Poor’s 500-stock index was 85% funded as of December 2018 – not much of a discrepancy.

• Market value: $35.8 billion
• Dividend yield: 2.6%
• Delta Air Lines (DAL, $54.73), one of a handful of blue-chip stocks in the airline space, also faces challenges from its massively underfunded pension plan. The company had pension obligations totaling $19.8 billion as of the end of last year, but funding of only $13.5 billion. Delta’s 68% funding ratio gave it one of the weakest coverage ratios in the S&P 500. The company said it would contribute $500 million in 2019, but that still puts it well shy of its obligation.

Delta’s pension woes are the result of many years of overly rosy estimates of what it could earn from invested pension assets. From 2008 to 2017, the company anticipated investment returns totaling $7.7 billion, but actual returns were only $5.8 billion.

Its overly optimistic assumptions are a threat to future earnings since every 50-basis point decline in plan returns adds $73 million to pension expense. Using the more conservative return assumptions employed by other S&P companies would add as much as $438 million to Delta’s pension expense. David Trainer, CEO of independent research firm New Constructs, LLC, estimated last year that the hit to earnings would come to 48 cents per share.

Despite its pension issues, however, Delta has delivered seven consecutive quarters of better-than-expected financial results, and Wall Street is highly bullish about this blue-chip airline stock. Among the 22 analysts following Delta, 16 have “Buy” or “Strong Buy” ratings, while six say it’s a “Hold.” A slew of analysts reiterated their “Buy” calls a couple months ago following the company’s earnings report. That includes Cowen analyst Helane Becker, who raised her price target given Delta’s solid core business and the renewal of a credit card partnership with American Express (AXP).

• Market value: $99.3 billion
• Dividend yield: 2.5%
• Lockheed Martin (LMT, $351.60), the largest of the defense-industry blue chips, also has issues with a poorly funded pension plan. Lockheed Martin was forced to contribute $5 billion to its pension plan in 2018 – roughly equivalent to a full year of earnings – to reduce a pension funding gap that had swelled to $15.6 billion, or approximately 16% of the company’s current market value. The 2018 contribution was a big change from LMT’s typical contribution, which has averaged only about $50 million annually in recent years.

Even with the $5 billion infusion, Lockheed Martin’s plan remains noticeably underfunded. The company ended 2018 with pension obligations totaling $43.3 billion and pension assets valued at $32.0 billion, creating a funding gap of $11.3 billion.

Regardless of pension challenges, Lockheed Martin is off to a roaring start in 2019. A broader bull run and better-than-expected first-quarter results (EPS of $5.99 beat consensus analysts by nearly 40%) have sent LMT shares 34% higher. produced a 30% year-to-date share price gain.

A major growth driver for Lockheed Martin is its F-35 fighter jet program. Poland formally ordered 32 fighter jets in May, and other NATO allies are purchasing aircraft as well. Japan is the largest buyer, with 105 F-35s ordered, and the UK, the Netherlands, Norway and Italy have all ordered jets. The U.S. plans to purchase 2,663 F-35 fighter jets for the Air Force, Navy and Marines in coming decades. Lockheed Martin expects to sell 4,600 fighters over the life of the F-35 program, valued by analysts at over $1.3 trillion.

Each of its four businesses recorded sales and profit growth in the first quarter, causing Lockheed Martin to raise its 2019 EPS guidance by 90 cents per share, to a range of $20.05 to $20.35.

• Market value: $51.1 billion
• Dividend yield: 4.2%

Creditors of General Motors (GM, $36.01) continue to seek higher awards as part of a revised settlement of the company’s legacy ignition switch lawsuit. GM allegedly sold vehicles with faulty ignition switches, which could have prevented airbags from deploying during a crash.

If approved, the new settlement could cost General Motors an additional $1 billion in stock and force the company to accept additional claims totaling more than $35 billion. General Motors said in its 2018 annual report that it opposes the revised settlement but was unable to estimate the losses or a range of losses that could result if courts rule in favor of its creditors.

Despite these lawsuit challenges, analysts remain impressed with GM’s competitive positioning in trucks and autonomous vehicles, assisted by its popular OnStar service. Bank of America/Merrill Lynch analyst John Murphy has a “Buy” rating and $63 price target on GM stock. Morgan Stanley analyst Adam Jonas believes GM will benefit from strong demand for its trucks and SUVs for several more quarters and rates the shares “Overweight” (equivalent of “Buy”).

And General Motors is compensating investors generously with a 4%-plus dividend yield at current prices.

• Market value: $10.5 billion
• Dividend yield: N/A
• PG&E (PCG, $19.77), the holding company for California utility Pacific Gas & Electric, certainly had a place among blue-chip stocks until relatively recently. However, it filed for bankruptcy in 2019 due to crushing wildfire liability costs. California officials concluded that sparks from PG&E equipment caused multiple massive wildfires in 2017 and 2018 and plaintiffs are seeking damages estimated to exceed $30 billion.

Although a bankruptcy filing doesn’t make litigation disappear, it does consolidate claims into a single proceeding before a bankruptcy judge, potentially avoiding excessive jury awards.

Costs relating to wildfire-related inspections, cleanup and legal fees trimmed 70 cents per share from the company’s first-quarter 2019 earnings. PG&E won’t provide full-year 2019 guidance due to uncertainty around the lawsuits, but estimates at least $1 billion-$1.4 billion of additional wildfire-related expenses this year.

PG&E is America’s largest electric utility, providing natural gas and electricity to more than two-thirds of California. The utility is no stranger to bankruptcy, having suffered through one 18 years ago when it was forced to sell electricity below costs. The company reemerged from bankruptcy in 2004 after paying $10.2 billion to creditors.

PCG shares have lost nearly two-thirds of their value from their 2017 highs, yet have rebounded considerably from earlier in 2019, when they plunged below $7. The 13 analysts who cover the stock aren’t howling to sell, either. Eleven are staying on the sidelines with cautious “Holds,” but two analysts – who are banking on lighter-than-expected penalties and see opportunities in this beaten-down stock – consider it a “Buy.”

Citi analyst Praful Mehta is one of them, actually upgrading the stock to “Buy” in February and reiterating its call just a few days ago. “We believe legislation (to socialize wildfire costs across several other groups) will be passed by the end of session and not July 12th. As noted earlier, we think this legislation will follow the path of least resistance,” he writes.

These are heady days for dividend lovers. Dozens of companies with excellent track records are providing investors with annual payouts that exceed yields on five- and even 10-year Treasury bonds. Yes, Treasuries may be safer, but dividends tend to rise over time. Plus, when your T-bond matures, you simply get back its original face value—unlike stocks, which can appreciate.

For example, the 10-year Treasury bond yields 2.59%, but Procter & Gamble (symbol PG, $102), a member of the Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, yields 2.8% and has increased its dividend for 62 consecutive years. Coca-Cola (KO, $45), which said in February that it was raising its dividend for the 55th year in a row, is yielding 3.5%. (Prices and returns are through March 15.)

But are dividend-paying stocks really superior? Had you invested solely in stocks that make regular payouts to shareholders, you would have missed some of the market’s biggest successes. Alphabet, Amazon.com, Berkshire Hathaway and Facebook—four of the six largest companies by market capitalization—pay no dividends.

Rather than handing money to their shareholders every few months, fast-growing companies often invest their profits in their own business—in new factories or software, as Amazon has done in building its cloud-computing subsidiary, or buying complementary firms, as Alphabet (then called Google) did when it bought YouTube.

Warren Buffett, chairman of Berkshire, likes collecting dividends from the companies he owns, but he never pays them himself. He wrote in 2013, “Our first priority with available funds will always be to examine whether they can be intelligently deployed in our various businesses…. Our next step … is to search for acquisitions unrelated to our current businesses.”

You might consider dividend-paying a kind of failure of imagination by management. Why, then, has a particular kind of dividend-paying stock become especially popular in recent years? I’m talking about the stocks of companies, such as Procter & Gamble and Coca-Cola, that increase dividends year after year.

At the end of 2018, there were 53 firms in Standard & Poor’s 500-stock index that met this standard for at least 25 years, qualifying for the encomium “Dividend Aristocrats.” But why laud such companies when, year after year, they return more money to investors because management can’t put it to better use?

The answer is that investing in stocks that pay dividends—especially rising dividends—turns out to be a terrific strategy. The S&P 500 Dividend Aristocrats index has returned an annual average of 18.3% over the past 10 years, compared with 17.1% (including dividends) for the S&P 500 as a whole. Usually, higher returns indicate higher risk, but the Aristocrats have achieved their returns with less volatility than the full S&P.

Why do consistent dividend-raisers perform so well?

They have a moat. To increase a dividend consistently, a company typically needs a distinct competitive advantage, a “moat” that keeps competitors from the gates. A moat lets the firm raise prices and keep the profits flowing even in bad times. A good example is Coca-Cola, one of Buffett’s favorites. Its strong brand and distribution system provide one of the widest moats in the business world.

Dividends don’t lie. Dividends are probably the best indicator of the health of a business. You can manipulate earnings per share, but you can’t fake cash.

Conservative ideals. Companies that want to maintain a record of dividend hikes are run conservatively because the worst calamity for them is a dividend cut. In investing, a great way to make money is to avoid firms that take too many risks and concentrate instead on the plodding winners. Dover (DOV, $91) scores profits through a diversified business that makes such boring items as refrigerator doors and industrial pumps. The result has been 63 consecutive years of increased dividends.

They’re a buffer. Dividends provide a buffer in difficult times. In a bad year, the market may drop 3%, but if the yield on your portfolio of dividend-paying stocks is 3%, you’ll break even.

In 2008, the worst year for large-cap stocks since 1931, the S&P 500 lost 37% (counting dividends), but the Dividend Aristocrats lost only 21.9%—thanks to moats, conservative management and consistent payouts. In 2018, the S&P 500 lost 4.4%; the Dividend Aristocrats index lost 2.7%.

A good way to buy these stocks is through ProShares S&P 500 Dividend Aristocrats (NOBL, $67), an exchange-traded fund (ETF) with an evenly weighted portfolio and an expense ratio of 0.35%. The fund has not only beaten the S&P 500, it has also finished in the top half of its category (large-company blend) in every one of its five full calendar years of existence. Among the stocks in the fund’s portfolio that have raised dividends for at least 55 years in a row (in addition to Coke, P&G and Dover) are 3M (MMM, $208), Colgate-Palmolive (CL, $66), Emerson Electric (EMR, $67), Genuine Parts (GPC, $107) and Johnson & Johnson (JNJ, $138). 3M, Emerson and J&J are also Kip Dividend 15 picks.

Although the Aristocrats fund has been impressive, it does not provide enough diversification all by itself. The fund is heavily weighted toward industrial and consumer-products stocks, and less than 2% of the fund is in technology—a sector that represents 20.6% of the S&P 500. And it owns only large-company stocks.

ProShares also offers a mid-cap version, ProShares S&P MidCap 400 Dividend Aristocrats (REGL, $56), with a requirement that stocks have only 15 con­secutive years of rising dividends, as well as a small-cap version, ProShares Russell 2000 Dividend Growers (SMDV, $59), with a 10-year minimum. Both funds are relatively new, but both have clobbered their peers (mid-cap value and small-cap core funds) over the past three years, according to Morningstar.

Simply buying well-chosen dividend stocks is not a ticket to success. Take, for example, Vanguard Dividend Growth (VDIGX), a very popular mutual fund ($34 billion in assets) now closed to new investors. Run by a human manager and charging 0.26% in expenses, the fund returned an annual average of 15.1% over the past 10 years, compared with 16.5% for the S&P 500.

I should add that although Aristocrats keep increasing their payouts, the yields for some of them can be exceptionally low. Cintas (CTAS, $206), which rents work uniforms and has been one of my favorite stocks for decades, has raised its dividend every year since going public in 1983. Despite a big payout hike last year, its shares yield only 1%.

The average S&P 500 stock yields 1.9%, and ProShares S&P 500 Dividend Aristocrats yields only a bit more. If you want higher yields with slightly added risk, the best bet is Vanguard High Dividend Yield (VYM, $86), an ETF based on an FTSE Dow Jones benchmark. With expenses of just 0.06%, it recently yielded 3.1%. Over the past 10 years, it has essentially kept pace with the S&P 500, trailing the index by an annual average of just two-tenths of a percentage point.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. Of the stocks mentioned here, he owns Amazon.com.

How many times have you seen articles discussing the best market calls of all time? Probably quite a few. They’re everywhere.

But you don’t hear much about the worst market calls of all time. That’s because nobody likes to talk about their losers, especially not market professionals who are paid to be correct.

That’s too bad, in a way. Because regular investors can learn a lot from a pro’s mistakes, not just the successes. (That idea applies to most things in life, not just investing, by the way.)

For instance, Jesse Livermore shorted the entire stock market right before the 1929 crash, netting himself a cool $100 million for his troubles. That’s pretty interesting. But investing isn’t just about finding winners – it’s about figuring out how to avoid losers and minimize losses. We could’ve learned plenty had Livermore also discussed his worst trades and why these bets failed to deliver profits.

Let’s look at 10 of the worst stock calls by the so-called “pros,” which include institutional investors, celebrity stock callers and even CEOs. Some of these are simply “wow” moments that we couldn’t repeat if we wanted to, but some of these provide very tangible lessons for investors.

Data is as of March 13.

• Investor: Jim Cramer of CNBC’s Mad Money
• The Call: Long GE

Love him or hate him, Jim Cramer – the one-time lawyer turned professional investor – can sure cause a stir.

It’s difficult to know how many stocks Cramer has talked about through his 14-year stint as host of CNBC’s Mad Money, but it’s likely in the thousands. Thing is, like most investment pundits, Cramer is going to get it wrong occasionally.

• General Electric (GE, $10.02), which Cramer recommended several times throughout his career, including in 2008 and in 2015, might not be his worst call in the show’s 14-year run, but it’s up there. It’s certainly the one that’s most talked about, and it’s among his greatest regrets.

“GE is one of the biggest mistakes of my career,” Cramer said in October 2017 amid rumors of a potential dividend cut (that eventually happened). “Rarely have I felt this stupid.”

At the time Cramer made the comments – both he and his charitable trust owned GE shares – it was trading around $20, and former CEO John Flannery was still in charge of the company. Neither of those things are the case anymore.

In November 2018, Cramer applauded analysts Stephen Tusa and John Inch for railing against the industrial conglomerate long before anyone else would. Tellingly, Cramer’s disclosure statement from the show contained no ownership of GE stock.

• Investor: Whitney Tilson
• The Call: Recommending investors avoid Google (now Alphabet) ahead of its IPO

Did you see the chart making the rounds in 2017 comparing the stocks of Google parent Alphabet (GOOGL, $1,199.06) and Domino’s Pizza (DPZ) from their respective initial public offerings in summer 2004 through January 2017? At the time, Domino’s had smoked Alphabet by more than 800 percentage points.

But don’t feel too sorry for Larry Page and Sergey Brin. Since 2004, the founders have gone from relative nobodies on the wealth scale to the seventh and ninth richest people in the world with a combined net worth of $114 billion.

That brings us to Whitney Tilson. Tilson probably is best known for running the Kase Capital hedge fund until he closed it in 2017 after diminishing assets under management made it pointless to keep afloat. From an individual-stock position, he has done a lot of analysis and writing in the past about Berkshire Hathaway’s (BRK.B) intrinsic value. (Like most people, he’s a fan.)

However, one of the lowlights of Tilson’s career came on July 30, 2004, when the then-younger, less experienced investment manager wrote a piece for The Motley Fool that recommended investors choose Dell over Google before the latter’s IPO in August. The highlight:

“What are the odds that it is the leading search engine in five years (much less 20)? 50/50 at best, I suspect, and I’d wager that odds are at least 90% that its profit margins and growth rate will be materially lower five years from now. Yet investors appear ready to value this company at as much as $36 billion, nearly 200 times trailing earnings!”

Tilson actually at least gave Google a chance of becoming the top dog in search – and it did, he just didn’t bet on it at the onset. It was a conservative call on what was a very speculative bet at the time.

Today, Alphabet has a market value of nearly $830 billion. Ironically, Dell’s market cap is a few billion more than Google’s high valuation 15 years ago.

• Investor: Carl Icahn
• The Call: Long Blockbuster

Call it activist investing, muckraking, whatever you want, just don’t suggest that billionaire Carl Icahn, who turned 83 this year, will slow down anytime soon. As long as the mind’s working fine, Icahn will continue to search for the next big score.

Icahn’s not quite as wealthy as Page and Brin, but he’s still worth nearly $20 billion, according to the Bloomberg Billionaires Index. It’s hard to imagine anyone as wealthy as Icahn making many mistakes, but he has. And one that stands out is Blockbuster Entertainment – the gone-but-not-forgotten video-store chain.

Icahn started buying Blockbuster’s stock in late 2004 when the company boasted more than 9,000 locations in more than 12 countries, and when the market value is around $5 billion. He ultimately acquired a $191 million stake in the company.

Unfortunately, Netflix (NFLX) had already emerged on the scene by that point, offering a subscription-based DVD service that made going to the video store unnecessary. Three years later, Netflix launched its video streaming service, and the rest is history. Icahn sold his shares in 2010 for pennies on the dollar, losing an estimated $180 million.

Icahn himself outlines what went wrong: “Blockbuster turned out to be the worst investment I ever made,” he said in 2011. “It failed because of too much debt and changes in the industry.” The takeaway for every investor should be that no matter what the industry, look out for potential technological disruptions. They’re everywhere.

• Investor: Bill Gates
• The Call: Invested $150 million in Apple and provided software for Apple computers

If you’re a big user of Apple (AAPL, $181.71) products, as I am, Microsoft (MSFT) founder Bill Gates’ unprecedented $150 million investment in Steve Jobs’ baby back in 1997, which likely saved the company, can only be viewed as the ultimate in corporate philanthropy.

Sure, it’s possible that a deal like this between two major competitors could happen today. But it’s not likely.

Gates and Jobs had a fierce rivalry at the time of the investment. Although they had known each other for years, their relationship was an uneasy one. When Jobs announced at Macworld in Boston that Microsoft would buy $150 million in newly minted Apple stock and provide five years of support for Office for Mac, the audience of Apple fans booed Gates’ image on the massive video screen.

“The unexpected revelation ... prompted gasps of disbelief and loud boos from the audience of thousands of Mac users and software developers,” The Seattle Times reported.

Jobs calmed the angry mob, saying, “We have to let go of a few notions here. We have to let go of the notion that for Apple to win, Microsoft needs to lose.”

Shortly after Gates’ noble gesture, Jobs was made interim CEO of Apple. The brilliant tactician went to work rebuilding the company one product at a time, and proved to be a thorn in Microsoft’s side for years.

• Investor: Bill Ackman
• The Call: Short Herbalife

Heading into the final quarter of 2018, Pershing Square Holdings – Bill Ackman’s New York-based hedge fund – was having a bounce-back year. Its net value was up 9.7%, 620 basis points higher than the Standard & Poor’s 500-stock index. Unfortunately, the fourth quarter was a major dud, raining on Ackman’s comeback parade.

If you had never heard of Ackman before 2018, you’d have thought the long-time hedge-fund manager was a rising star. Good things were happening in his portfolio, including a $900 million position in Starbucks (SBUX) in which he bought shares at an average price of $51. (Shares now trade above $70.)

But if you’ve followed Ackman over the previous few years, the mere mention of his name brings back terrible memories of an investor who seemed to be losing his edge.

While Ackman’s $4 billion loss on Bausch Health Companies (BHC), formerly known as Valeant Pharmaceuticals, was more significant in terms of actual dollars, his $1 billion short of nutritional supplement maker Herbalife (HLF, $57.37) pitted him against Carl Icahn in a very public verbal sparring match over the stock.

Ultimately, Ackman was unable to convince investors that Herbalife was a Ponzi scheme, and its shares rocketed up in value, forcing the hedge fund manager to cover his short position in February 2018, generating an undisclosed (but presumably substantial) loss. For what it’s worth, while the FCC never ruled Herbalife a pyramid scheme, it did fine the company $200 million and placed certain restrictions on its sales.

As for Icahn, his long position turned into a billion-dollar profit.

• Investor: Eddie Lampert
• The Call: Long Sears for too long

The story on Sears Holdings (SHLDQ, $0.66) hasn’t been entirely finalized, the odds are stacked against the once-iconic department store from rising from the ashes. You can put that on Eddie Lampert – CEO of hedge fund ESL Investments, and former CEO and chairman of Sears.

Lampert got himself into this mess by originally acquiring Kmart debt in 2002 at 40 cents on the dollar. The discount chain had filed for Chapter 11 bankruptcy protection, and it was crumbling fast. When the debt dropped to 20 cents on the dollar, he bought more, ultimately buying up $800 million of the stuff.

“To most people, Kmart looked like a pile of trash,” Al Koch, of restructuring advisor AlixPartners, said at the time. “We were told that this hedge fund guy had bought a huge portion of Kmart and wanted to get it out of bankruptcy fast. None of us had ever heard of him.”

Kmart emerged from bankruptcy in May 2003 with his debt converted into a 54% equity position in the company. Lampert went to work cutting expenses, inventories and anything not tied down to generate cash. By the next summer, Kmart was making money and sitting on $3 billion in cash.

Then came Lampert’s downfall.

He announced in June 2004, at the ripe old age of 42, that Kmart was merging with Sears in an $11 billion transaction that would create a company with $55 billion in annual revenue and 3,500 stores. Key to the deal was $500 million in annual savings from the merging of operations. But rather than spend money actually improving stores, Lampert bought back Sears shares by the bucketful – $5.8 billion between 2005 and 2010 – to consolidate his power in the merged business.

Sears hit a high point of $125.42 during the second quarter of fiscal 2010. Lampert’s ESL Investments owned 65.2 million shares worth $8.2 billion. He could have sold for a nice profit at the time. Instead, he had to spend $5.2 billion in February buying it from a bankruptcy auction.

• Investor: Warren Buffett
• The Call: Not buying Amazon shares

Warren Buffett has few regrets. And why would he? He gets to do what he loves every day while getting by on $84 billion.

But like any good investor, you remember the stocks you should have sold but didn’t … and you remember the stocks you wish you would have bought but didn’t.

• Amazon.com (AMZN, $1,690.81) is the latter.

Buffett, not being much of a tech or online guy, couldn’t see the forest from the trees. Moreover, his stringent value principles kept him from making a riskier growth play.

“Obviously, I should have bought it long ago, because I admired it long ago,” he said in February 2017. “But I didn’t understand the power of the model as I went along. And the price always seemed to more than reflect the power of the model at that time. So, it’s one I missed big time.”

“I had very very very high opinion of Jeff’s ability when I first him, and I underestimated him,” Buffett said of Amazon CEO Jeff Bezos at Berkshire Hathaway’s 2018 annual meeting. “I’ve watched Amazon from the start. I think what Jeff Bezos has done is something close to a miracle ... The problem is when I think something will be a miracle, I tend not to bet on it.”

As a result, he never pulled the trigger on Amazon stock. If he had, he might be the world’s wealthiest person today – not Bezos.

• Investor: Stanley Druckenmiller
• The Call: Long Verisign and other tech stocks worth $6 billion in late 1999

Who can forget the dot-com bubble of 1999-2000, when investors went from valuing stocks based on earnings to sales because hardly any of the tech companies were making money?

Stanley Druckenmiller sure can’t.

Druckenmiller grew up in Pittsburgh, thought about becoming an economist, but instead decided to become an investment analyst, getting his first job at Pittsburgh National Bank. By 28, he founded his own hedge fund, Duquesne Capital Management, which he successfully ran for 30 years before shutting down in 2010. That hedge fund averaged 30% annual returns between 1986 and 2007. But what happened to the billionaire investor in 1999 might have hastened his retreat from investing eight years later.

Druckenmiller was investing money for George Soros’ Quantum Fund in early 1999. One of his trades was a $200 million short on tech stocks. Unfortunately, his play was too early; he was forced to cover a couple of months later, losing $600 million.

Eager to make that money back, he decided to ride the momentum of tech stocks. He bought $6 billion worth of the sector’s stocks, including Verisign (VRSN, $180.48), which was on a major roll. Stocks like Verisign went up fast in 1999 … but came down hard just as fast in 2000 and 2001.

“I bought $6 billion worth of tech stocks, and in six weeks I had lost $3 billion in that one play,” Druckenmiller discussed in Michael Batnick’s book Big Mistakes: The Best Investors and their Worst Investments. “You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basketcase and I couldn’t help myself. So maybe I learned not to do it again, but I already knew that.”

• Investor: Masayoshi Son
• The Call: Long numerous dot-com stocks

Fast Company recently called Japanese billionaire Masayoshi Son the most powerful person in Silicon Valley. Son’s biggest holding in North America, at least regarding public companies, is an 85% stake in Sprint (S), the fourth-largest wireless carrier in the U.S. A merger between Sprint and T-Mobile (TMUS) is being fought out in court; if it goes through, SoftBank Group (SFTBY) – Son’s holding company in Japan – would own 27% of the new entity.

However, it is SoftBank’s $100 billion Vision Fund that’s earned him the Fast Company moniker. SoftBank has contributed $22 billion of the capital with other extremely wealthy organizations putting in the rest.

By every standard, Masayoshi Son is a wealthy man. Bloomberg’s Billionaires Index pegs him at $13.4 billion and in 87th place. Not bad at all.

The thing is, before the tech meltdown between 2000 and 2002, Son was estimated to be worth $78 billion. But the visionary investor lost almost 90% of his net worth in two years. As Wired wrote in 2004, “SoftBank blew billions more on Asahi TV, Asia Global Crossing, SKY Perfect, and a throng of dotcom dogs: Kozmo.com, More.com, SportsBrain. Webvan? Yep, that was him.”

What investors could learn from Son might not be what he did wrong with those dot-com busts, but what he did afterward: He didn’t quit taking risks.

• Investor: Vadim Perelman
• The Call: Long Walter Investment Management / Ditech Holding

Vadim who?

When I first read the story of the young, brash portfolio manager taking the world by storm, I thought it might be one of billionaire Ron Perelman’s kids. That’s not the case.

Vadim Perelman is a deep-value investor who has run his own hedge fund, Baker Street Capital Management, since 2009. At the height of his success in 2013, Baker Street had a portfolio worth $854 million, using a highly focused approach to stock selection.

For example, Perelman held just four stocks at the end of 2013, with almost all of it invested in Sears. Like many others, he thought the real estate was worth more than the company’s market value. He exited in mid-2015.

He apparently didn’t learn from his Sears investment, however, plowing all of Baker Street’s remaining assets into Walter Investment Management, a Florida mortgage servicer and nonbank lender. The company filed for Chapter 11 in December 2017, then emerged from bankruptcy protection three months later as Ditech Holding Corporation (DHCPQ, $0.17) – a provider of residential mortgages – with $800 million in debt cut from its balance sheet.

Ditech was delisted from the New York Stock Exchange later in 2018 and currently trades over the counter. Walter Investment Management’s equity was erased.

It’s easy to identify the hottest tech stocks of today, but it’s much more difficult to look several years through the fog and determine who’ll still be on top.

But RBC Capital’s analysts have just released a fascinating report, “Imagine: 2025,” highlighting tech stocks they believe will outperform all the way through 2025.

This requires a different set of criteria than would be used for short-term tech analysis. Writes RBC: “Equity valuations are based on the present value of future cash flows. Most analysis is focused on the next quarter or 1-2 years, but rarely is time and effort taken to think about the next 7 years when assessing the valuation of a company.”

This involves 1) identifying themes and norms that will become standard by 2025; and 2) identifying forward-thinking companies most boldly and effectively positioned for this new future.

Here are 10 of the top tech stocks to buy for future growth, according to RBC Capital. We’ll also use TipRanks market data to understand whether now is a compelling time to invest in these technology companies.

Data is as of July 31, 2018. Consensus price targets and ratings based on “Best Performing” analysts. Stocks are listed in alphabetical order.

• Market value: $872.6 billion
• TipRanks consensus price target: $2,097.97 (18% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)
• Amazon.com (AMZN, $1,777.44), along with Google parent Alphabet (GOOGL), has invested the most heavily in artificial intelligence, writes RBC Capital. And unlike smaller rivals, AMZN also boasts “the Big Data access and Compute Power infrastructure to benefit the most from AI and ML (machine learning) deployments.”

The sheer size of Amazon’s markets means the company still has a very strong growth outlook, too. RBC writes, “AMZN faces the most large TAMs (total addressable markets) among the Internet companies -- Retail, Cloud, Advertising, Shipping & Logistics, Business Supplies, etc.”

For example, Amazon holds just a 10% share of the massive $20 trillion retail market, and a 10% share of the $1 trillion cloud market.

RBC’s conclusion: Amazon is quickly making its way toward a $1 trillion market cap. Indeed, on very strong Q2 results, top RBC analyst Mark Mahaney (view Mahaney’s TipRanks profile) ramped up his price target from $1,900 to $2,100 per share.

The stock has already posted a remarkable year-to-date run of more than 50%.

• Market value: $486.3 billion
• TipRanks consensus price target: $209.09 (21% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)

Don’t unfriend Facebook (FB, $172.58) just yet.

Facebook’s shares have been leveled by about 20% following a disappointing second-quarter earnings report. But long-term, the picture remains extremely compelling, and RBC thinks now is the time to jump in.

“This likely constitutes One of the Best Entry Points you can get on FB, in our view,” RBC’s Mahaney wrote after shares’ July 26 plunge. He has a $225 price target on the stock (32% upside potential).

RBC Capital notes that Facebook has made substantial progress in its AI and ML efforts as it moves to capitalize on its massive scale and resources. “The amount of user data FB can leverage – and we point to its 2B+ users on FB platform alone – we think gives the company a unique advantage,” RBC writes. Facebook can use these new AI and ML capabilities to better refine their text analysis, ad targeting and newsfeed sorting, to name a few examples.

• Market value: $208.3 billion
• TipRanks consensus price target: $228.89 (16% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)

As new markets and technologies flourish, RBC Capital predicts that by 2025, payment flows will surge to approximately $200 trillion – four times the current addressable market. And MasterCard (MA, $198.00) is perfectly positioned to reap the rewards.

“We believe MA (stands) as beacons of ‘Trust’ around the world, which will enable them to capture a disproportionate amount of share in these new payment flows,” RBC Capital writes.

Indeed, RBC Capital’s Daniel Perlin (view Perlin’s TipRanks profile) already has highlighted MasterCard as a top pick. Following solid earnings results, this five-star analyst wrote, “MasterCard remains one of our best ideas in the space given our belief that investors should look to focus on long-term, secular-driven stories that provide solid organic growth with opportunities for margin expansion.”

So far, his bet is on the money. MA is up 32% since the start of the year.

• Market value: $61.8 billion
• TipRanks consensus price target: $84.68 (60% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)

Red-hot chip stock Micron (MU, $52.79) manufactures semiconductor devices, primarily NAND and DRAM memory. Luckily for MU, all roads in 2025 lead to data creation, says RBC Capital.

“To the extent that transpires we see MU with their DRAM * NAND portfolio as well positioned,” its analysts write.

While DRAM markets historically have gone through severe boom/bust cycles, RBC Capital is confident that the cycle(s) going forward will be more muted and less volatile. “This inherently means that memory companies broadly should earn more profits and FCF over the cycle than historical trends would suggest” writes RBC analyst Amit Daryanani (view Daryanani’s TipRanks profile). He has an $83 price target on the stock, implying 57% upside potential.

That would be quite the feather in the cap of current shareholders, who are already enjoying 87% returns over the past 52 weeks.

• Market value: $814.4 billion
• TipRanks consensus price target: $120.63 (14% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)

For RBC Capital, Microsoft (MSFT, $106.08) represents a “leading hyperscale hybrid cloud platform with big runway of growth in AI, IoT, Gaming and other services.”

Microsoft CEO Satya Nadella told investors at a recent conference: “AI is going to be one of the trends that is going to be the next big shift in technology.” He is placing AI at the heart of Microsoft’s strategy and product development. “It’s going to be AI at the edge, AI in the cloud, AI as part of SaaS applications, AI as part of, in fact, even infrastructure,” Nadella said.

Already, Microsoft’s Azure cloud platform powers multiple AI projects, including enabling developers to create powerful artificial-intelligence applications and chatbots. One example: Microsoft’s Cognitive Services, which enables developers to easily add AI capabilities such as speech recognition, voice synthesis and search to their applications.

So far, these efforts (and others) are paying off; MSFT stock is up 23% year-to-date.

• Market value: $147.4 billion
• TipRanks consensus price target: $397.61 (18% upside potential)
• TipRanks consensus rating: Moderate Buy (See Details)

Like Facebook, Netflix (NFLX, $337.45) disappointed investors with its most recent earnings report; shares are now down 15% during the past few weeks after the streaming-video company reported lower-than-expected subscriber additions.

But RBC’s Mark Mahaney (view Mahaney’s TipRanks profile) thinks the bull story behind NFLX – which still is up 70% year-to-date – remains firmly intact.

“After 4 very strong quarters, Netflix had a weak Q2. We’ve seen this story before (i.e. Q2:16), but note that long-term fundamental trends remain intact, and Q2 generally has some lumpiness,” Mahaney writes, maintaining a “Buy” rating and a $360 price target.

Longer-term, RBC believes Netflix is heading in the right direction with its AI focus. “Given its 120MM subscriber base, NFLX has the data and resources to leverage AI technology,” its analysts write. “Today NFLX uses AI technology for content promotion and targeting, content price optimization, programmatic marketing, and improving streaming quality, to name a few.”

“One of the company’s experiments (includes) creating software-edited trailers that are personalized for each subscriber, increasing the likelihood of those viewers to watch the movie,” RBC writes.

• Market value: $148.8 billion
• TipRanks consensus price target: $292.82 (20% upside potential)
• TipRanks consensus rating: Moderate Buy (See Details)

RBC calls Nvidia (NVDA, $244.86) a “leader in AI.”

Nvidia’s graphics processing unit (GPU) chips are perhaps best-known for their gaming capabilities, but they’re increasingly being used for data-heavy AI applications. GPUs are the engines of visual computing; they enable computers to understand, create and enhance images. As a result, these chips play a role in everything from gaming to data centers to self-driving vehicles.

The best part is that a strong competitor has yet to emerge, especially in self-driving, where RBC sees Nvidia emerging as the “winner.”

Indeed, Nvidia is ramping up its auto efforts to take advantage of the shift to smart cars with complex data needs: Think speech-to-text interface, internet-connected devices, proximity sensing, and self-driving potential as well as increasingly advanced display technologies.

NVDA has been among the best tech stocks of the past couple years, up 320% since this point in 2016. But analysts broadly see at least 20% more upside potential from here, and those targets might continue to climb if Nvidia continues to trounce expectations.

• Market value: $98.2 billion
• TipRanks consensus price target: $97.46 (18% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)
• PayPal (PYPL, $82.14) is all set to tap the long-term global shift to digital commerce. Not only is it a champion of worldwide democratized finance, but it also is capitalizing on the digitization of retail and financial services. “We believe PayPal’s above peer growth rates should be sustainable and could accelerate with incremental capital deployment, given its strong cash position,” RBC’s Daniel Perlin writes.

PayPal differentiates itself from competitors by offering an open platform that is designed for both merchant and consumers, the analyst firm says. “PYPL brings scale and a unique two-sided model (relationships with both consumers and merchants), which allows them to control the entire consumer experience.”

So while PayPal is reeling in the short-term following sales guidance that fell short of analysts’ hopes, RBC still thinks PayPal will play a critical role in tapping the roughly 2 billion people around the world who lack financial services. In fact, Perlin actually ramped up his price target from $87 to $95 shortly after PayPal’s report.

• Market value: $31.7 billion
• TipRanks consensus price target: $202.37 (15% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)

This rapidly growing IT cloud company still is up more than 30% year-to-date despite a post-earnings retreat. Essentially, ServiceNow (NOW, $175.96) transforms information technology for global businesses by managing all their IT service relationships. This can involve creating a single system of record for IT and automating manual tasks, or standardizing processes and consolidating legacy systems.

“We think NOW is exposed to large and growing areas of spend in several next-gen areas including automation and machine learning,” writes RBC Capital. The firm calls ServiceNow a “favorite” because the company “is operating at a different gear than peers as the flywheel of a true multi-product and profitable platform company spins at a rapid rate.”

RBC spies big potential for the company to expand outside the IT world. “ServiceNow could become the platform for the enterprise as customers and partners write custom SaaS applications for HR, finance, facilities, legal, procurement, etc. on its platform.”

RBC’s Matthew Hedberg (view Hedberg’s TipRanks profile) boosted his price target from $200 to $205 on July 26 following a mixed earnings report that included top- and bottom-line beats, but also light guidance.

• Market value: $14.3 billion
• TipRanks consensus price target: $126.27 (32% upside potential)
• TipRanks consensus rating: Strong Buy (See Details)
• Splunk (SPLK, $96.10) provides a software platform for real-time operational intelligence. More than 9,500 customers around the world use Splunk in multiple ways, from deepening customer understanding to cutting cybersecurity risk and fraud.

“We are bullish on Splunk’s ability to grow and take share in a new market that we call operational intelligence … it’s about gaining actionable insight to make better business decisions by harnessing the full power of data,” RBC writes. Looking toward the future, “We think SPLK is well positioned as a hybrid-cloud data management platform that can leverage massive data-sets and harness machine learning trends better than most.”

In May, the company beat first-quarter profit and revenue estimates and also beat expectations for Q2 guidance. That prompted Matthew Hedberg to reiterate his “Buy” rating with a new $125 price target. Investors will get to see Splunk’s fiscal second-quarter results after the Aug. 23 closing bell.

Note: RBC included five other tech stocks in its report: Alphabet, Apple (AAPL), Synopsis (SNPS), Salesforce.com (CRM) and Visa (V).

Want to beat the market? Academic work for decades has pointed the way: Invest in value stocks — stocks that are cheap relative to their earnings, cash flow or assets.

Since 1940, value stocks have beaten the broad stock market by an annualized 4.5 percentage points per year, according to The Leuthold Group, an investment research firm. But over the past 10 years, growth crushed value. The Russell 1000 Growth index topped the Russell 1000 Value index by an average of 3.5 percentage points annually.

What happened? Scott Opsal, a Leuthold analyst, cites earnings growth and price-to-earnings ratios. From July 31, 2008, through March 31, 2018, the growth index’s P/E rose 53% while the value index’s P/E expanded just 14%. Meanwhile, from the value index’s peak in May 2007 through March 31, earnings per share rose just 16% compared to 46% for the growth index.

Drilling deeper, about one-quarter of value stocks are financials, which were slaughtered from 2007-09 and continued to lag for years afterwards. The second largest sector in value is energy, which tumbled over the past four years. Meanwhile, technology — which has soared since the end of the last bear market — makes up 35% of the growth index. “There are no FAANGs in value, just FAANG victims,” says Russell Kinnel, director of fund manager research at Morningstar, referring to the FAANG stocks Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL).

Value stocks remain a sensible way to invest. And now that two of the biggest value sectors have cleared major hurdles, they could finally turn the tide against growth. Here are five top value funds to buy if you want to harness the power of a good bargain.

Data is as of June 18, 2018.

• Market value: $105.1 billion
• Expense ratio: 0.67%
• Minimum Investment: $250
• American Funds Washington Mutual Investors F1 (WSHFX, $44.95) is one of the most conservative funds from a very conservative fund shop. All but 10% of the stocks must be in the Standard & Poor’s 500-stock index, all but 5% of the stocks must pay dividends and 80% of firms must have paid dividends in at least eight of the past 10 years. The fund also steers clear of companies involved in defense, tobacco or alcohol.

Washington Mutual is designed to earn decent returns in bull markets and hold up better than its competitors in rocky markets. The fund is about 5% less volatile than the S&P 500 and did better than the benchmark in the last two bear markets. In the past 10 years, the fund has returned 9.3% — a bit less than the S&P, but easily topping the Russell 1000 Value.

WSHFX sticks largely to mega-caps. The average market capitalization of its stocks is $105 billion — almost double that of the S&P 500. The fund’s eight managers, each of whom is responsible for a percentage of the fund’s assets, don’t like to trade; stocks stay in the fund an average of eight years.

In a theme you’ll see repeated in other funds in this article, Washington Mutual is not a deep-value fund. In fact, it currently lands in the large blend category in Morningstar’s style box. But in more ordinary times, expect it to tilt harder to value.

American Funds, which used to be available only through investment advisors, offers F1 shares that can be purchased through online brokerages, including Fidelity and Schwab.

• Market value: $7.6 billion
• Expense ratio: 0.07%
• Minimum Investment: N/A
• Schwab U.S. Dividend Equity ETF (SCHD, $50.48) makes a perfect addition to a portfolio that’s grown a bit too heavy in growth stocks. The exchange-traded fund is loaded with large, profitable, dividend-paying stocks that nevertheless are in the undervalued part of town. Top holdings are Exxon Mobil (XOM), Home Depot (HD), Intel (INTC) and Pfizer (PFE) — each roughly 5% of the fund.

Launched in 2011, the fund returned 11.5% over the past five years — slightly lagging the S&P but trouncing the Russell 1000 Value. The fund is just about as volatile as the S&P. However, aiding the fund’s returns is a miniscule expense ratio of just 0.07% annually, or $7 for every $10,000 invested.

The fund starts with the 2,500 largest U.S. stocks and looks for those that have consistently paid dividends over the past decade. Next it scores the remaining stocks on several indicators of quality. The fund winds up with 100 nice-yielding stocks — the fund yields 2.6% — with good fundamentals.

• Market value: $69.9 billion
• Expense ratio: 0.52%
• Minimum Investment: $2,500
• Dodge & Cox Stock (DODGX, $206.61) is a longtime Kiplinger favorite. It’s a member of the "Kiplinger 25" best no-load mutual funds. Launched in 1965, the fund boasts nine co-managers, two of whom have been on the fund since 1992. A seasoned analyst staff supports the managers. As with the much larger American funds, analysts and managers frequently stay at Dodge & Cox their entire careers.

The fund invests in large-company stocks that are statistically cheap on a variety of measures. Dodge & Cox often buys stocks that face what management views as temporary challenges. Stocks stay in the fund an average of eight years. The fund currently owns big slugs of financial services (28% of assets), healthcare (22%) and technology (17%).

Over the past 10 years, the fund has trailed the S&P by roughly half a percentage point per year, but it has beaten the Russell 1000 Value by more than a percentage point.

One caveat: Dodge & Cox is volatile — about 20% more volatile than the S&P. That hurt the fund in the 2007-09 bear market.

“All told, this fund requires patience,” says Andrew Daniels, a Morningstar analyst. “It likely will reward investors willing to stomach short-term pain, but it is not for everyone.”

• Market value: $25.4 billion
• Expense ratio: 0.8%
• T. Rowe Price Value (TRVLX, $37.18) has a 5% position in Microsoft (MSFT), which has a trailing 12-month P/E of 68, and a forward P/E of 30 based on estimated earnings for the next four quarters. While most of Manager Mark Finn’s holdings are more value-oriented, the Microsoft holding illustrates that this isn’t a pure value offering.

Says Finn: “I’m not going to buy some beaten-down company just because it’s in some index. I make big bets when I believe there’s an opportunity. I shouldn’t have to sell Microsoft the minute it’s no longer a value stock.”

Over the past 10 years, the fund has returned an annualized 9.3% — about one-half percentage point less than the S&P 500 and about 1 percentage point better than the Russell Value per year. The fund is about as volatile as the S&P.

Finn, who has been at T. Rowe since 1990, is supported by the firm’s deep and experienced analysts.

“Over the very long term, buying cheap companies and selling expensive companies works,” Finn says. “The trick is to avoid value traps.” Newspapers and most retail stocks are some categories currently in that latter category.

• Market value: $36.3 billion
• Expense ratio: 0.68%
• Fidelity Low-Priced Stock (FLPSX, $56.18) can’t produce good returns and bumblebees can’t fly. Of course, neither is true. But the $36 billion Fidelity fund with 950 stocks with an average market capitalization of less than $8 billion, on its surface, looks like an invitation to trouble.

But consider the returns. Over the past 10 years, the fund returned an annualized 9.9%, essentially tying the S&P while beating the average mid-cap value fund by about 1 percentage point per year. What’s more, the fund topped its average competitor over more recent periods, too. Plus, the fund is 10% less volatile than the S&P 500 and 25% less volatile than the average mid-cap value fund. That has helped FLPSX outpoint its peers in bear markets.

The genius behind this compelling fund is Joel Tillinghast, who has run it since inception in 1989. Co-managers run 6% of assets, which has only a little material effect on returns. The fund holds stocks, on average, for 12 years.

By prospectus, the fund must buy only stocks selling for less than $35 a share — a silly rule to some, but one that has served Tillinghast well.

Critics point out that Tillinghast has done better with a couple of new, smaller funds — one available to Canadian investors and the other available only as part of Fidelity target-date retirement funds. But Low-Priced Stock remains a superb choice.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

Does “FOMO” – fear of missing out – have you down? If you’re in the stock market but too scared of tech stocks, you might be feeling a twinge of regret right now.

The famous FAANG stocks – Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL) – returned 49% on average in 2017. These companies simply crushed the Standard & Poor’s 500-stock index, which gained a bit more than 19% last year.

If you’re worried that these gains are divorced from fundamentals, you’re barking up the wrong tree. All of these companies are growing revenues year-over-year, and all but Amazon are on pace for year-over-year profit gains (Amazon has been open about its reason for earnings declines: heavy investment into Amazon Prime content, warehouses and other improvements).

What’s more, the price investors are paying for that growth is conservative relative to the broader market. James Wang, internet analyst at ARK Investment Management, sees many valuations for tech stocks being lower than the broader market. “For example, Facebook is growing revenue at 47% but trades at P/E of 33. It’s much cheaper than the S&P 500 average of 4% growth and 26 P/E,” he says, noting that investors can buy FAANGs’ growth for cheaper than the broader market’s growth.

You can access these stocks individually, but funds are an attractive alternative. Buying funds that are heavily invested in FAANG stocks allows you to ride them higher while also benefiting from other technological trends. Here are 10 funds that offer the best of several worlds.

Data is as of Jan. 29, 2018. Yields represent the trailing 12-month yield, which is a standard measure for equity funds. Funds listed in reverse order of FAANG exposure. Click on ticker-symbol links in each slide for current share prices and more.

• Market value: $619.8 million
• 52-week return: 26.4%
• Distribution rate: 6.8%*
• Expenses: 1.08%
• FAANG Weight: 7.9%

The list’s first entry is an odd duckling, in that the AllianzGI Equity & Convertible Income Fund (NIE, $22.37) is one of the few funds discussed today that aren’t technology-specific. Instead, the NIE is a broad-equity, multi-asset fund.

Nonetheless, its top six holdings include four FAANG stocks – Facebook, Apple, Amazon and Alphabet – which makes it a good stand-in for investors who want to benefit from these stocks specifically without heavily overweighting tech.

Yes, NIE is most heavily exposed to the tech sector (34.9%), but it also has significant holdings in consumer discretionary (17.6%), health care (15.6%) and industrials (15.6%). Moreover, this diverse fund not only includes equity, but convertible bonds. Thus, it’s less exposed to a big downturn in the stock market. Whenever that may be. Lastly, the fund can sell covered calls – a popular trading strategy used to generate income.

That explains a generous distribution rate of 7.2%, which recently was increased and is currently more than covered by its capital gains and investment income from those bond holdings. The fund offers this generous yield without using leverage – an oft-used tool of CEFs; combined with its covered-call strategy, that makes NIE a safer pick than similarly constructed funds during down markets.

*Distribution rate – which can be a combination of dividends, interest income, realized capital gains and return of capital – is an annualized reflection of the most recent payout. Distribution rate is a standard measure for CEFs.

• Market value: $548.9 million
• 52-week return: 93.4%
• Dividend yield: 0.1%
• Expenses: 0.75%
• FAANG Weight: 9.7%

The ARK Innovation ETF (ARKK, $42.33) is a tech-focused fund, investing in companies that are involved with budding technologies across three main cornerstones – the “Genomic Revolution,” “Web x.0” and “Industrial Innovation” – for three ARK exchange-traded funds.

In other words, this is a blended “best of the best” ETF that doesn’t target one particular theme, but instead broader technological innovation. Thus, the cloud, robotics, electric vehicles and several other trends are represented in the ARKK.

While the FAANGs play a small part in this fund’s performance, the company also is heavily invested in companies such as EV maker Tesla (TSLA), 3D printing company Stratasys (SSYS) and genome editing therapy developer Intellia Therapeutics (NTLA).

ARKK also offers a bit of geographic diversification, with some of its portfolio dedicated to Chinese tech giants Baidu (BIDU) and JD.com (JD), as well as companies from Japan and other nations. Lastly, it’s worth pointing out that the fund has a small (1% presently) holding in the Bitcoin Investment Trust (GBTC) – an over-the-counter fund that attempts to track the price of the cryptocurrency Bitcoin.

• Market value: $667.6 million
• 52-week return: $64.2%
• Distribution rate: 5.2%
• Expenses: 0.9%
• FAANG Weight: 19.3%

Like the NIE, the BlackRock Science and Technology Trust (BST, $29.84) sticks out in large part because of its sizable dividend. At 5.2%, the BST yields far more than just about every tech ETF on the market.

That’s in part because BST, like NIE, is a closed-end fund, which offers a few advantages on the yield front. For instance, CEFs’ market yield can sometimes be higher than the actual yield on the fund’s portfolio, as it’s possible for closed-end funds to trade at a discount to their net asset values. BlackRock’s fund currently trades at a slight 1% discount to NAV, slightly helping to prop up the yield.

But the high yield largely is attributable to BST’s ability to sell covered calls against its portfolio – just like NIE.

Past those attributes, BlackRock Science and Technology Trust’s portfolio looks like your garden-variety global technology fund. About 64% of BST’s 89 holdings are in U.S. tech stocks including FAANG members Apple, Alphabet, Amazon and Facebook, while the rest is an international smattering including China (14.6%), Japan (3.7%) and the Netherlands (3.2%).

A good strategy for many CEFs is to try to buy in when the fund’s discount widens. BST, for instance, has traded at a whopping 11% discount to NAV within the past 52 weeks.

• Market value: $111.5 million
• 52-week return: 24.7%
• Dividend yield: N/A
• Expenses: 0.6%
• FAANG Weight: 19.5%

Warren Buffett lovers may take a liking to the Davis Select U.S. Equity ETF (DUSA, $25.13) – a broad equity fund that seeks out “high-conviction, best-of-breed businesses.” That’s because DUSA not only has more than 10% of its assets invested in the Oracle of Omaha’s Berkshire Hathaway (BRK.A, BRK.B), but it also holds Berkshire picks such as American Express (AXP) and Wells Fargo (WFC).

The best-in-breed focus by managers Danton Goei and Christopher Davis has resulted in numerous bets on tech, including FAANG stocks Amazon and Alphabet as well as companies such as China e-commerce platform JD.com.

This is hardly a large fund, at just $111 million in assets under management, making it microscopic in the multi-trillion-dollar ETF universe. However, it’s attracting net assets fast – DUSA boasted just $27 million in AUM midway through 2017.

• Market value: $341.8 million
• 52-week return: 88.2%
• Dividend yield: 0.8%
• Expenses: 0.75%
• FAANG Weight: 19.9%

The ARK Web x.0 ETF (ARKW, $51.11) homes in on various companies “expected to benefit from shifting the bases of technology infrastructure to the cloud,” covering a wide swath of industries including cloud computing, e-commerce, digital media and even blockchain.

Its fairly aggressive approach to technology makes its five FAANG holdings look conservative by comparison. For instance, the fund invests in Tesla – still a relative upstart in the automaking industry – Latin American e-commerce platform Mercadolibre (MELI) and even Bitcoin via GBTC.

Concerning the risks in this ultra-tech portfolio, ARK analyst James Wang told me that his company takes a multi-pronged approach to managing the risks of a major downturn in the fund. “We control risk through diversification across industry and geography as well as by employing a longer investment time horizon,” he said.

Indeed, roughly 20% of the portfolio is invested outside of North America – one of several factors that has led the ARKW to a three-year return of nearly 150%, which is more than double the U.S.-focused Technology Select Sector SPDR Fund (XLK).

• Market value: $1.6 billion
• 52-week return: 43.4%
• Dividend yield: 0.9%
• Expenses: 0.48%
• FAANG Weight: 26.3%

The iShares Global Tech ETF (IXN, $165.50) is a so-called “global” fund, which means that it invests both domestically and abroad – typically with a heavy bent toward the U.S. (For truly ex-U.S. exposure, you want to look for “international” funds.)

To wit, the IXN is almost three-quarters exposed to American stocks, while Japan and China are its largest international areas of investment at just 5.3% and 4.3%, respectively. There’s also a distinct lack of European focus, with Germany and the Netherlands the largest representatives at a respective 2.2% and 1.2%.

What’s also important to note is that the IXN’s definition of “tech” is one that views companies such as Amazon and China’s Alibaba (BABA) as consumer discretionary (essentially, retailers) instead of technology. Thus, while this ETF is very much a who’s who of global large-cap tech, it’s missing a few familiar names that many people often associate with tech.

Still, the FAANGs are well-represented with large holdings in Apple, Facebook and Alphabet. International mega-caps include the likes of Tencent and South Korea’s Samsung (SSNLF).

• Market value: $19.0 billion
• 52-week return: 40.3%
• Dividend yield: 1.0%
• Expenses: 0.1%
• FAANG Weight: 30.7%

The Vanguard Information Technology ETF (VGT, $177.71) is the tech entry from the king of inexpensive passive investing, costing a mere $10 annually on every $10,000 invested.

As far as sector funds go, there are few cheaper options.

Basic passive index funds do have their problems, among them that you often get plenty of losers alongside the winners. While the VGT is chock full of FAANGs, its market capitalization-weighting methodology also means that laggard International Business Machines (IBM) recently was a top-10 holding. This is a company that, up until recently, strung together a 22-quarter streak of declining year-over-year revenues.

Still, a heavy allocation to the FAANGs – Apple (13.9%) and Alphabet (10.2%) are both double-digit weightings – and a broader tech focus have served the VGT well. The fund has delivered a total return of 165% over the past five years, clobbering the S&P 500’s 107% total return in the same time period.

• Market value: $21.4 billion
• 52-week return: 37.2%
• Dividend yield: 1.4%
• Expenses: 0.14%
• FAANG Weight: 31.9%

The Technology Select Sector SPDR Fund (XLK, $68.56) is the largest technology ETF on the market, at $21.4 billion in assets under management. That’s thanks in part to simply being around for so long (its inception was in December 1998), and in part because of its low expense ratio.

Like the VGT, the XLK is market cap-weighted, which means $860 billion Apple is its largest holding at 13.6% of the portfolio, while Alphabet and Microsoft (MSFT) make up another 11%-plus apiece. Facebook rounds out the FAANG exposure for this ETF, which doesn’t hold Amazon nor Netflix.

One nice thing about the XLK is that its focus on large-cap tech has resulted in a focus on dividend growth. Yes, the fund only yields a measly 1.4% at current prices, but the nominal payout has grown from 21 cents per share in 2018 to 87.61 cents last year – meaning earlier investors have seen their dividends and yield on cost quadruple in that time.

These distributions should continue growing as an ever-larger number of tech companies are paying out dividends as they mature. For instance, Apple delivered absolutely no income as recently as 2012, but has grown its dividend by roughly 66% since it resumed a regular payout six years ago.

• Market value: $549.9 million
• 52-week return: 44.4%
• Dividend yield: N/A
• Expenses: 0.6%
• FAANG Weight: 36%

If you’re optimistic about the growth of online commerce, you can express that confidence via the PowerShares Nasdaq Internet Portfolio (PNQI, $131.04).

The PNQI invests in stocks tethered to internet-related businesses, covering e-commerce, social media, video content delivery and more. That means there are FAANGs aplenty – only Apple is excluded from the bunch – as well as online travel site Priceline.com (PCLN), online auction site eBay (EBAY) and Chinese gaming giant NetEase (NTES).

While the fund’s moniker might lead you to believe that it only holds Nasdaq-listed stocks, that’s not the case – it simply invests in companies tracked by a Nasdaq-created index, which includes stocks listed on the New York Stock Exchange and other exchanges. Also, a modified market-cap weighting methodology means that larger companies generally contribute more to performance, but it’s not based entirely on size. For instance, $123 billion Netflix (10.6%) is a significantly larger holding than $540 billion Facebook (7.3%).

Investors also should note that consumer discretionary stocks such as Netflix and Amazon make up almost 40% of the fund, which means PNQI really should benefit from the continued trend of people shopping and otherwise spending money online.

• Market value: $64.5 billion
• 52-week return: 36.5%
• Dividend yield: 0.8%
• Expenses: 0.2%
• FAANG Weight: 36.1%

The PowerShares QQQ Trust (QQQ, $170.09) is the most FAANG-happy fund out there despite the fact that it’s technically not a tech fund.

Yes, the QQQ is indeed a tech-heavy portfolio, with the sector claiming just more than 60% of the fund’s assets. But that’s a result of what the ETF does – not necessarily its intent. See, the PowerShares QQQ Trust tracks the Nasdaq-100, which is an index composed of the 100 largest non-financial companies on the Nasdaq stock market. It just so happens that many of those companies are in the tech space.

Other sectors are represented, too, including consumer discretionary and healthcare. So in addition to large holdings in the FAANGs, there are companies such as Starbucks (SBUX), Marriot International (MAR) and Amgen (AMGN).

There’s a worry that some FAANGs’ price-to-earnings ratios have become too inflated thanks to their breakneck runs, putting funds like the QQQ at risk. However, Robert Rostan – founder, CEO and principal at financial education center Training The Street – says many value investors that avoid the FAANGs do so because of a traditional (and possibly outdated) focus on the wrong metrics.

“I think that the FAANG equities are measured more by their growth and potential growth, not current earnings,” Rostan says. That doesn’t mean earnings are irrelevant – but that the traditional accounting rules in GAAP (generally accepted accounting principles) are less relevant for the technology companies of today than they were for the industrial firms of yesteryear. “The one GAAP measure that captures some growth is revenue, and I do think that revenue multiples are still appropriate for these firms,” he says.

Even if you haven’t heard of the acronym, you’ve surely heard plenty about FAANG companies. Facebook, Amazon, Apple, Netflix and Alphabet (represented by a “g” because it was formerly Google) have become darlings of the market in recent years, thanks to the companies’ seemingly limitless abilities to sustain high sales and profit growth rates. Over the past five years, the FAANG five have returned 41.6% annualized, on average, compared with a 15.8% annualized gain for Standard & Poor’s 500-stock index.

But today, the shares look awfully pricey. While the S&P 500 trades for about 20 times estimated earnings for the next four quarters, FAANGs sport an average price-earnings ratio of 69.

As FAANG bears like to point out, the market has gone weak-kneed for growth stocks before, with disastrous results. In the mid 1960s, the Nifty Fifty were high-flying shares of growing companies that seemingly could do no wrong. The stocks soared to excessive price-earnings ratios into the early 1970s, then crashed and burned during the 1973–74 bear market. As Jeremy Siegel, professor of finance at the Wharton School, has put it, the Nifty Fifty demonstrated that investors shouldn’t “pay any price” for growth.

We’re not FAANG bears, but we do think investors should approach the stocks with caution. We’ve rated each stock “buy,” “sell” or “hold.” Only one stock, Apple, merits a buy rating in our view, and even that comes with a caveat: Chances are you already hold a large position in the stock through mutual funds, so be careful not to overload your portfolio.

Data is as of November 13, 2017. Price-earnings ratio are based on estimates for the next four quarters. Click on ticker-symbol links in each slide for current share prices and more.

The world’s largest social network may be facing political woes, as lawmakers scrutinize Russian abuse of the platform leading up to the 2016 election. But Facebook (FB) has a track record of confronting hurdles head-on. For example, in early 2012 the company acknowledged that it had missed the boat on smartphones—more users were accessing Facebook on their phones, but the company wasn’t running ads on its phone app or mobile site. By the end of 2013, mobile advertising accounted for 53% of total ad revenue, and by the third quarter of 2017, mobile ads accounted for 88% of total revenue of $10.3 billion. Chris Carter, co-manager of the Buffalo Growth fund, says advertisers see spending on Facebook ads as a necessity. “It has nearly an unrivaled audience,” he says, with more than two billion active users. Analysts on average expect Facebook to sustain 27% profit growth over the next five years. That said, the stock is fairly valued at the current price.

Amazon.com (AMZN) is already the reigning king of online shopping, but its ambitions don’t end there. The company holds the number-one market share position in “cloud computing,” in which businesses and individuals rent space on Amazon’s servers to access their data online. With its recent acquisition of Whole Foods, the company seems to be betting on a future of online-ordered groceries. And some industry analysts have stoked speculation that the secretive company is planning a move into the pharmacy industry. Amazon’s “land grab” strategy, as Amana Growth fund co-manager Scott Klimo describes it, requires high ongoing investment spending, which means reported profits could be greatly understating the company’s potential profitability. “Amazon will be able to turn on profitability when it wants to,” Klimo says. However, the land-grab phase could last a long time, and retail sales and groceries are hardly known as high-margin businesses. At a 181 P/E, investors should take a pause on the stock.

• Apple (AAPL), the most mature company of the five, is the only FAANG to pay a dividend and the only value stock on the list, with a P/E of 16. Although iPads, Mac computers and sales of services still represent important contributors to the business, Apple is mainly a phone company, with the iPhone accounting for 55% of sales during the company’s most recent quarter. But it’s not just the phone that consumers pay a premium for—it’s the suite of apps and media and integration with other Apple products. “It’s a painful process for an Apple customer to switch to an Android-based phone,” says Carter. And consider that if you adjust its market capitalization for the company’s $269 billion hoard of cash and securities, then Apple’s P/E falls to just 11.

Netflix (NFLX) shares have soared 76.6% annualized over the past five years, as subscribers have grown at a roughly 30% annual clip, to 109 million worldwide. But winning subscribers in the first place is only part of the battle—Netflix also must hold on to those subscribers as competitors launch new services and pull content from Netflix’s platform. In August, for example, Walt Disney announced that it would stop licensing films to Netflix and would instead launch its own streaming service. Netflix knows it needs to fight to hold on to customers’ eyeballs, so it has been investing massive sums in producing its own original high-quality content. Netflix’s business strategy is reasonable, but at a 94 P/E, investors are underestimating the ferociousness of its competition. Consider locking in profits at the stock’s current price.

Alphabet’s (GOOGL) ancillary business lines are full of tech-sector buzzwords: self-driving cars, cloud computing, artificial intelligence. But at its core, Alphabet is an ad company. Advertising revenue accounted for 88% of total sales of $22.5 billion in the third quarter of 2017. The big-picture investment rationale for Alphabet goes something like this: As more people around the world spend more time online—Googling things, watching YouTube videos and checking their Gmail accounts—Alphabet sells more ads. But, says Gregg Fisher, founder of investment advisory firm Gerstein Fisher, “like all companies closely tied to a specific revenue stream, there is a significant risk to concentration.” The company’s likely growth rates are already baked into its stock price.

Some years, it hardly seems to matter whether you invest in growth or value strategies – all stocks move up together, or all stocks move down together. But in 2017, strategy has mattered in a big way. Mutual funds that invest in large, undervalued companies have returned a respectable 10.8% year-to-date on average. But funds that invest in large, growing companies have returned a whopping 24.4%.

It’s an impressive performance gap, but it’s likely not a sustainable one. That’s because much of the gains in large-cap growth funds can be attributed to the five stocks that make up the “FAANG” acronym: Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL). After posting heroic average returns of 48.2% so far this year, those stocks now trade at a whopping 58.7 times next year’s earnings estimates, on average. It’s hard to picture them delivering another bang-up year from such high valuations.

Instead, we suggest investors refocus their attention on bargain-hunting. We’ve profiled the five top-performing no-load mutual funds that invest in large, undervalued shares, as ranked by five-year performance. Each fund boasts stellar management and a solid long-term track record.

If the market wakes up one morning and decides it’s no longer in love with growth, these five value funds should benefit.

em>Data is as of Nov. 17, 2017, unless otherwise noted. Funds listed in alphabetical order. Click on ticker-symbol links in each slide for current share prices and more.

• Expense ratio: 1.05%
• 1-year return: 15.6%
• 5-year annualized return: 16.6%

At Boston Partners All-Cap Value Fund (BPAVX, $26.48), manager Duilio Ramallo has a big ocean to select stocks from – the fund may invest in American and foreign companies of all sizes. But mainly, BPAVX sticks to large U.S. firms – at last report, 66% of assets was invested in large companies, and 88% was invested in U.S. stocks.

Ramallo’s aim is to identify shares of companies that exhibit three characteristics: an attractive valuation, strong business fundamentals and catalysts for change or positive business momentum.

The fund’s two largest sector allocations at the moment are financial stocks, at 30.1% of assets, and technology shares (25.7%). The latter is an unusual focus for value investors – the average large-cap value fund holds just a 12% allocation to tech stocks – since tech generally is considered more the domain of growth investors. Top holdings include the likes of JPMorgan Chase (JPM), Citigroup (C) and Cisco Systems (CSCO).

The fund is a long-term winner, too, with an 11.9% annualized return over the past 15 years that has beaten 99% of peer large-cap value funds.

• Expense ratio: 0.52%
• 1-year return: 15.3%
• 5-year annualized return: 16.8%

Dodge & Cox is known for its deep-dive approach to investing, and that approach has served investors well at Dodge & Cox Stock Fund (DODGX, $201.09).

Bryan Cameron, director of research for the fund company, explains that analysts start their research process with publicly available information, then talk to clients, customers, competitors and suppliers, and finally meet with a company’s management before recommending an investment for the fund. Analysts and managers seldom leave the firm, which means over time the investing team gathers a deep, accumulated knowledge base of the companies it follows. In recent years, the fund’s typical holding period for a stock position has been more than five years.

In today’s market, Cameron says, the team has to look beyond bargain-basement stocks to build a well-rounded portfolio. They are finding some opportunities among financial stocks (DODGX’s largest sector holding, at 27.2% of assets), which still are feeling the pain of low interest rates, and among certain energy stocks (7.8%) that they feel will be well-positioned should energy prices rebound.

An added benefit of this Kip 25 member: The fund’s expense ratio is roughly half that of the average large-cap value fund.

• Expense ratio: 0.62%
• 1-year return: 19.3%
• 5-year annualized return: 16.1%

The Homestead Funds have an unusual origin story. The fund company was launched in 1990 to manage funds on behalf of a co-op of locally owned rural electric providers, say Homestead Value Fund (HOVLX, $54.86) co-managers Mark Ashton and Prabha Carpenter, in jointly emailed comments. “We’re a small team that had to find a way to invest prudently but opportunistically to grow the savings of employees of these rural electric co-ops,” the pair says. That original mandate still translates into a focus on avoiding losses.

Another quirk of the fund, as the managers say, is that it is “sector- and industry-agnostic.” Instead of chasing certain sectors or industries, management will follow “a particular idea until we find the investment angle that fits our risk-averse style.” For example, if they are looking for opportunities related to the growth of e-commerce, instead of only looking at retailers, they might also consider trucking companies. At the moment, the fund is heaviest in technology (21.4%), healthcare (17.2%) and financials (16.6%).

Finally, instead of mainly focusing on a stock’s cheapness, they take a more holistic approach – evaluating, for example, a firm’s managers and considering whether there might be a catalyst for growth in a specific business segment.

That approach has served investors well. Homestead Value Fund’s 9.8% annualized return over the past 15 years is better than 85% of peer funds.

• Expense ratio: 0.91%
• 1-year return: 19.3%
• 5-year annualized return: 16.1%
• Sound Shore Fund’s (SSHFX, $49.92) management team follows a disciplined, bottom-up stock-picking process, says John DeGulis, who has been a co-manager on the fund since 2003. The team first screens for U.S. stocks and ADRs trading for low price-to-earnings ratios, then runs an additional “value check” – looking at a range of valuation ratios to confirm that a prospective investment is, indeed, undervalued. Finally, the team digs in with traditional fundamental research, with one aim being to establish a company’s long- and near-term earnings power.

It’s unusual to find an investment-management shop that offers only one product. Even rarer is to find one that has managed that product well for more than 30 years. Parent company Sound Shore Management launched its eponymous fund in 1985, and the fund’s original managers, Harry Burn and T. Gibbs Kane, still are at the helm.

The team likes “financially sound companies that have underperformed and have lost Wall Street’s attention due to low expectations,” DeGulis says. For example, the fund first invested in Applied Materials (AMAT) – a supplier of equipment and services to the semiconductor industry – in 2010, when the Great Recession still was hanging over the stock. The team concluded Applied Material’s 3D chip technology and other products were going to become big earnings drivers. They were right – the stock has gained more than 300% since the end of that year. SSHFX still holds the position.

Sound Shore has returned 9.8% on average over the past 15 years, beating 85% of its peers. And the company says it has returned 10.2% annualized over the past 30 years through the end of the third quarter, besting the Standard & Poor’s 500-stock index's 9.5% annualized return over the same period.

• Expense ratio: 0.82%
• 1-year return: 17.6%
• 5-year annualized return: 15.9%

Manager Mark Finn has steered T. Rowe Price Value Fund (TRVLX, $38.81) – another Kip 25 fund – since the beginning of 2010. Finn says his goal in the fund is to seek out “high-quality companies facing some kind of controversy that through our work we determine to be temporary or addressable.” The fund also benefits from T. Rowe Price’s deep stock-research bench.

Although it held 117 individual stock positions as of last report – hardly making for a concentrated portfolio – Finn also isn’t afraid to load up the portfolio with big stakes in high-conviction names. He says much of the fund’s outperformance over time has come from those high-conviction picks.

Today, Finn says he’s seeing opportunities primarily in four areas: retail, media, energy and telecommunications. He likes Walmart (WMT), which he says “has the best chance of competing directly with Amazon” given its distribution capabilities and investments in e-commerce. Given ongoing disruption in the media industry, Finn says companies that offer “must-have” programming should fare best. He favors Twenty-First Century Fox (FOXA) for its “loyal following in sports and news.” Among energy companies, he likes EOG Resources (EOG), a shale producer that tends to operate more efficiently than industry peers. Lastly, Finn sees risk in the telecom sector, in part due to “intense price competition in their wireless business,” he says. But he’s still betting on Verizon Communications (VZ) and Crown Castle International (CCI), which he says should benefit as wireless technology moves to its fifth-generation, or 5G, iteration.

Talk of a tech bubble has some investors worried about the outsized gains in FAANG stocks, that quintuplet of fast-growing tech firms — namely Facebook (symbol FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Google’s parent, Alphabet (GOOGL). Bubble or not, we set out to find some FAANG-less growth stocks. In fact, we set our sights beyond the tech sector altogether, in search of businesses in other corners of the market with strong growth prospects.

Although the three selections below aren’t, strictly speaking, tech companies, that doesn’t mean they don’t use technology to drive growth. These days, finding a business that doesn’t “is like finding a company that runs without electricity,” says Dan Davidowitz, a comanager of Polen Growth.

Our picks hail from the medical and retail fields. Analysts, on average, expect earnings to grow at a rate that’s faster than the 11% earnings growth rate of Standard & Poor’s 500-stock index over the next year.

Prices and data are from August 18, 2017. Click on ticker-symbol links in each slide for current prices and more.

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• Symbol: ALGN
• Industry: Medical devices
• Market value: $13.5 billion
• Price: $168.61
• P/E: 47
• Estimated earnings growth rate over the next three years: 23%

This company has “technology” in its name, but it’s not a tech firm. It makes those invisible orthodontic braces, under the brand name Invisalign, that are gaining in popularity among adults and teens. “Vanity sells,” says Damon Ficklin, comanager with Davidowitz of Polen Growth fund.

Why bother with ugly wire braces when you can wear invisible ones? Invisalign braces — clear, plastic trays that are custom fitted and switched out periodically to gradually move your teeth into alignment — are more attractive in today’s selfie-obsessed world, says Ficklin. Also, you can’t floss with metal braces, but you can with Invisalign (by removing the trays). Invisalign can treat 50% of all orthodontic cases.

The firm’s clear braces aren’t new — they have been around for 20 years. And there are other players in this market. But customers are starting to ask for Invisalign by name, says Ficklin, a rare occurrence in the world of medical devices. “That takes the product into a whole new realm,” he says. More than 1 million patients worldwide have been treated since 2015.

Technological advances, including 3-D printing, have made treatment with Invisalign easier and more cost-effective. Typical metal braces cost $5,000; Invisalign costs $3,000 to $8,000 in the U.S. The adolescent market, which represents 70% of the entire orthodontic market, is a big growth driver for Align. The company said treatment cases for teens rose 38% in the second quarter compared with the same quarter last year; adult cases rose 29.2% over the same period.

At $169 per share, Align Tech stock trades at a multiple of 47 times expected earnings over the next 12 months. That may look rich, compared with an average price-earnings multiple of 18 for other medical device companies. But Align’s earnings are growing twice as fast. Analysts expect 27% growth in earnings over the next three years, annualized, compared with 10% for medical device firms on average.

• Symbol: TDOC
• Industry: Medical services
• Market value: $1.7 billion
• Price: $29.50
• P/E: not meaningful
• Estimated revenue growth rate over the next two years: 43%

Teladoc may change the way we deal with routine illnesses. The company is a top provider of anytime, anywhere medical care delivered through mobile devices, the internet, video and phone.

The Purchase, N.Y.-based firm contracts with doctors nationwide, who provide on-call treatment for a wide variety of cases, ranging from the common cold and the flu to a urinary tract infection. Teladoc then sells the service to employers, health plans and health systems, to offer as a benefit to their employees. The number of enrolled employees climbed 43% in 2016. Over time, as remote medical care becomes more mainstream, Teladoc, which commands 75% of the telemedical market today, will benefit. Analysts, on average, expect double-digit revenue growth over the next two years, according to Zacks.

The catch: Teladoc isn’t profitable yet. But Randy Gwirtzman, manager of Baron Discovery, expects the company to break even in the October-December quarter this year. More importantly, in his view, Teladoc has all the right characteristics of a good health care growth stock. “We look for a company that saves money for the government or the consumer, that delivers better outcomes for patients, is run by a good management team and has a high barrier to entry,” says Gwirtzman. “Teladoc satisfies all those things.”

• Symbol: ULTA
• Industry: Retail
• Market value: $15.2 billion
• Price: $244.20
• P/E: 28
• Estimated earnings growth rate over the next three years: 20%

Retailers are struggling these days, but not Ulta Beauty. The Bolingbrook, Ill.-based firm operates more than 1,000 stores in 48 states and the District of Columbia, offering a wide range of skincare and haircare products, makeup, cosmetics and salon services. Ulta is getting some lift from technology — the firm’s e-commerce sales increased 56% in the past fiscal year. But its brick-and-mortar sales are its core business. And wares don’t stay on the shelves for long. The firm’s quarterly same-store sales (sales at stores open more than one year) log consistent growth in the range of 9% to 14% compared with comparable prior-year quarters, at a time when other retailers are experiencing declining sales.

The stock, once a favorite of growth-oriented investors, has dropped nearly 22% since early June, in part because of news that Amazon.com may move into the beauty-products business.

But the company is rock-solid, and we would be ready to buy even if prices fall further. Ulta holds zero debt and produces plenty of cash. And over the past 12 months, it boasts a 22% return on invested capital, a measure of profitability. By contrast, the typical retail company, according to Zacks, reported a 11% return on invested capital over the past 12 months.

At $244 a share, the stock trades at a lofty 29 times expected earnings for the current fiscal year, ending in January 2018. But Ulta’s earnings are growing at a brisk pace compared with other specialty retailers. William Blair analysts Daniel Hofkin and Jordan Voss, who rate the stock “outperform,” expect Ulta to post earnings of $8.30 a share in the current fiscal year and $9.80 in the year ending in January 2019. That’s an increase, year-over-year, of 27% and 18%, respectively.

You might not think of “Nasdaq” as synonymous with big dividends. The Nasdaq Composite index, which essentially consists of every domestic and foreign stock that trades on the exchange, has long been heavy on technology. And technology companies have historically shown a bias for reinvesting their profits to finance future growth, rather than returning cash to shareholders. None of the FANGs — Facebook (symbol FB), Amazon.com (AMZN), Netflix (NFLX) and Google (GOOGL), now called Alphabet — pays a dividend.

But if you dig a little deeper, you’ll find some rich payouts. Here are eight Nasdaq-listed companies with generous dividends that have the potential to grow. Even better, many of the stocks are dirt cheap. Several of the companies have similar profiles: large technology firms that are past their years of rapid growth but still throw off a lot of cash, which can be used to boost distributions. But the Nasdaq holds more than just tech, so we’ve also included a few companies from other sectors, as well as some less-well-known tech firms.

Share prices and related data are as of February 17. Price-earnings ratios are based on estimated earnings over the next four quarters, including the current one.

• 52-week range: $92.00 - $134.54Market capitalization: $544.0 billionAnnual dividend rate per share: $2.08Yield: 2.1%Price-earnings ratio: 11Sure, the fate of Apple (symbol AAPL, $98.12) has become closely tied to the fate of the iPhone. And with our lives already saturated with Apple products, it’s hard to see how the company can grow as rapidly in the future as it has over the past 10 years.
• Finally, the stock is shockingly cheap, and Apple’s balance sheet is pristine. The stock sells for 11 times estimated year-ahead earnings, well below the S&P’s P/E of 16. The company holds about $216 billion in cash and securities, which works out to about $39 per share. If you subtract that cash from the share price, Apple’s P/E falls to just 6. “It’s a deal in broad daylight,” says McKinney. Since Apple resumed paying a dividend in 2012, it has boosted its payout at a 9.5% average annual pace.

But that saturation works to the company’s advantage. “Apple has created an ecosystem that makes its customers sticky,” says Burns McKinney, comanager of the AllianzGI NFJ Dividend Value Fund (PNEAX). Because of hurdles Apple has built to transferring content from Apple products to other companies’ products, and because of the ease with which Apple products work together, Apple customers tend to stay Apple customers, and so far they continue to be willing to pay a premium price for Apple products.

Apple still has room to grow in developing nations, as evidenced by record iPhone sales in China during the company’s most-recent quarter, which ended December 26. Emerging countries accounted for 34% of the $76 billion in revenues Apple generated in the quarter.

• 52-week range: $22.47-$30.31Market capitalization: $134.3 billionAnnual dividend rate per share: $1.04Yield: 3.9%Price-earnings ratio: 12
• Cisco (CSCO, $26.46) remains the industry leader for the routers and switches that carry the Internet’s traffic over networks. But the stock has been treading water for more than a decade. Some of the stock’s mediocre performance stems from flagging growth rates; Cisco’s sales have grown at an annualized rate of just 4.2% over its past five fiscal years (Cisco’s fiscal year ends in July). That compares with average annual sales growth of 10% for the five years through its 2010 fiscal year. The company has also been grappling with how to meet the long-term challenges of cloud computing and software-defined networking (in which programmers can direct their network’s traffic using software, rather than relying on routers and switches themselves to direct traffic), both of which threaten to obviate the needs of Cisco customers for miles of expensive gear. More immediately, a slowing economy poses the threat of businesses delaying their routine gear upgrades.
• Cisco’s stock, at 12 times estimated earnings, looks like a bargain, even after it jumped 10% on February 10 after the company announced a surprise 24% increase in the dividend. Plus, the company has $60 billion in cash and securities on hand.

But Cisco has the resources to meet its challenges. In its most recent quarter, which ended January 23, revenues from the Application Centric Infrastructure line – essentially Cisco’s answer to the rise of software-defined networking – more than doubled from the same period a year earlier. And the company has a strong track record of making the right acquisitions when it needs to boost its in-house capabilities.

• 52-week range: $13.84-$21.93Market capitalization: $12.1 billionAnnual dividend rate per share: $0.52Yield: 3.4%Price-earnings ratio: 10
• SEE ALSO: Stocks Paying Dividends for 100 Years or More

Like many banks, Fifth Third Bancorp (FITB, $15.41) has spent recent years recovering from the financial crisis and atoning for its errors. The Cincinnati, Ohio-based bank’s allowance for loan and lease losses – an estimate of its bad debts – fell to 1.37% of its total loans and leases at the end of 2015, from 4.88% at the end of 2009. Earnings have largely bounced back; Fifth Third earned $2.01 per share in 2015, compared with a loss of $3.91 per share in 2008 and precrisis earnings of $2.77 per share in 2005.

Fifth Third also continues to face increased regulatory scrutiny. In October, the bank agreed to an $85 million settlement with federal authorities over charges that it had failed to disclose problems on mortgage loans. The loans were insured by the U.S. Department of Housing and Urban Development, which suffered losses when borrowers defaulted. Following actions by regulators, Fifth Third also recently wound down its “deposit-advance” program, which offered loans similar to payday loans (the high-rate loans that often trap borrowers in cycles of debt). Closing the deposit-advance program cost Fifth Third about $94 million in interest income in 2015.

The upshot is that Fifth Third is gradually becoming a stable, boring bank – and that’s a good thing. CEO Greg Carmichael noted on the company’s January 21 earnings call that Fifth Third is aiming to focus on high-quality loans, on building a strong balance sheet and on fostering greater earnings predictability. It is in the middle of a plan to close more than 100 branches, aiming to save costs as more customers manage their finances online. Although Fifth Third may have trouble delivering big revenue growth now that it’s a sensible, if dull, bank, it’s also less likely to deliver any big unwelcome surprises to shareholders.

• 52-week range: $24.87-$35.59Market capitalization: $139.2 billionAnnual dividend rate per share: $1.04Yield: 3.5%Price-earnings ratio: 12

If you know Intel (INTC, $29.47) primarily for the “Intel Inside” sticker on your desktop, you might be worried about the company’s future. Sales of personal computers are in a long-term decline – falling 11% in the final quarter of 2015 from the fourth quarter of 2014, to levels not seen since 2008.

But these days Intel’s chips also reign supreme in data centers, the server farms used by companies with massive computing and storage needs. Intel reported record results for its data-center group in 2015, with sales up 11% from 2014. Intel also stands to benefit from the “Internet of things,” the expanding constellation of devices – from appliances to utilities grids to medical devices – that are going online.

Intel has been a consistent dividend payer. It has boosted its distribution at a 10% annual rate over the past decade. Intel generally pays out less than 50% of its earnings in the form of dividends. That’s fairly low, which signals that Intel will likely be able to continue paying its dividend even if it hits a rough patch. For example, in 2008 and 2009, during the Great Recession, Intel maintained its dividend rate even as profits stumbled.

• 52-week range: $37.77-$52.44Market capitalization: $8.7 billionAnnual dividend rate per share: $1.44Yield: 3.4%Price-earnings ratio: 15

Even more than Intel, Microchip Technology (MCHP, $42.66) is well positioned to ride the rising tide of the “Internet of things.” Microchip makes specialized semiconductor products that provide computing power to everything from cars to security systems to robots.

Scott Klimo, director of research for Saturna Capital, says that Microchip benefits from a broad product lineup, which should help keep results steady even when certain parts of its portfolio are flagging. “It’s not a company that just depends on laptops,” he says. Microchip is also geographically diversified, generating more than 80% of its revenues in Asia and Europe. Nearly all of Microchip’s sales are denominated in U.S. dollars, which mitigates the impact of a strengthening dollar on its foreign sales.

Earnings have been sluggish over the past year for most of the semiconductor industry, including Microchip. Analysts predict that the company will earn $2.65 per share for the fiscal year that ends in March, down a penny per share from the year before. But on Microchip’s February 3 earnings call for the quarter that ended December 31, CEO Steve Sanghi said he believes the industry has bottomed and is poised to recover. Analysts expect Microchip’s earnings will grow by 12% in the fiscal year that ends in March 2017.

Microchip has been a slow-but-steady dividend payer. Although it has only increased its payout at an annual clip of 1% over the past five years, it has never cut its dividend since it began paying one in 2002.

• 52-week range: $39.72-$56.85Market capitalization: $414.6 billionAnnual dividend rate per share: $1.44Yield: 2.7%Price-earnings ratio: 18
• SEE ALSO: Earn Big Dividends From These 5 Big Tech Stocks

Sunny skies lie ahead for Microsoft (MSFT, $52.42), whose future is all about the cloud. CEO Satya Nadella, who took over in February 2014, is making a big bet on Microsoft’s Azure cloud-computing segment – a bold move for a company long synonymous with the Windows operating system. Investors are cheering. Since Nadella took the reins, Microsoft shares have jumped a cumulative 44%, compared with 10% for the S&P 500.

Microsoft’s most-recent quarterly results, for the period that ended December 31, showed that Nadella’s bet is paying off. Sales from Azure grew 140% from the same period in 2015. And the number of cloud customers almost doubled during calendar 2015, with a majority of Fortune 500 companies now using the service. Microsoft has been able to use its clout in the enterprise market – that is, the market that caters to businesses rather than to individuals – to push its Azure platform, says Michael Allison, who manages Eaton Vance Tax-Managed Diversified Equity Income (ETY), a closed-end fund.

Microsoft has raised its dividend at an annualized rate of 15 over the past decade. Meanwhile, the company has $102.3 billion in cash and securities on its balance sheet.

• 52-week range: $41.59-$54.78Market capitalization: $18.3 billionAnnual dividend rate per share: $1.68Yield: 3.3%Price-earnings ratio: 24
• Paychex (PAYX, $50.61) dominates the payroll-processing market for small U.S. businesses. Although that core business is generally closely tied to overall economic growth, Paychex has demonstrated an impressive ability to churn out earnings gains even when the economy is sluggish. It has done that by offering an increasing assortment of extra services, such as flexible spending accounts and 401(k) recordkeeping, to its payroll clients.

Paychex could see a boost if interest rates finally rise in a meaningful way. That’s because the company can invest the funds it receives from clients before it sends checks to employees and before it pays withheld earnings to the Internal Revenue Service – just as insurance companies can invest premiums received from clients.

Paychex has no debt, and the company has never cut its dividend in the 26 years it has paid one. Paychex even managed to hike its payout during 2008, in the midst of the Great Recession. Over the past decade, the company has boosted its dividend by an average rate of 10% per year.

• 52-week range: $38.64-$111.84Market capitalization: $10.1 billionAnnual dividend rate per share: $2.00Yield: 4.6%Price-earnings ratio: 7
• Western Digital (WDC, $43.29) is the most speculative pick on this list. The company is the leading maker of hard-disk drives, the standard storage device of personal computers. Although the long-term fate of the PC market poses plenty of challenges on its own, Western Digital shares have been under pressure lately for a more immediate reason: a proposed acquisition of SanDisk Corp. (SNDK), which makes flash storage used in data centers and mobile devices.
• SEE ALSO: 9 Great Dividend Stocks for 2016

Western Digital’s stock has shed 39% since the SanDisk deal was announced on October 21. Investors seem to be concerned that Western Digital is overpaying for SanDisk and will take on too much debt – almost $18 billion – to pay for the deal.

But those risks have been overblown, says Mark Miller, an analyst who covers the stock for the Benchmark Company, an investment bank. If the deal is completed, the acquisition would make Western Digital the second-biggest player in the global market for solid-state drives, which have been displacing hard-disk drives, and will better position Western Digital to compete in the growing cloud-computing market. The company has said it plans to continue paying its dividend. “We’ve been pounding the table for long-term investors” to consider the stock, says Miller.