Top Rated Stocks of the Week - September 16, 2024
3min read As we approach the Federal Reserve's highly anticipated policy meeting, which could result in the first interest rate cut since 2020, the stock market is showing mixed signals. Amidst this uncertainty, several stocks have continued to stand out due to their solid fundamentals and growth potential.
Additions
There are three new additions to the Top 10 this week: META, DHI, CVX.
1. Meta Platforms (NASDAQ: META)
Meta Platforms, the parent company of Facebook and Instagram, has once again positioned itself as a top pick among mega-cap tech stocks. Despite a broader market slowdown, Meta has demonstrated resilience with its second-quarter results showing revenue growth of 22.1% year-over-year, reaching $39.1 billion. The company's robust profitability, driven by its Family of Apps, resulted in an impressive 50.4% GAAP operating margin.
Meta's commitment to artificial intelligence (AI) is a key factor in its success. The company continues to leverage AI to enhance user experience and advertising capabilities, a strategy that is paying off handsomely. The company delivered a 10% year-over-year increase in ad impressions and a 10% jump in price per ad. With strong cash reserves and a net cash balance sheet, Meta's future outlook is promising. The stock is expected to benefit from its AI investments and could see up to 30% upside based on its current valuation.
Key Metrics:
Revenue growth: 22.1% YoY
Operating margin: 50.4% (Family of Apps)
Expected upside: 30%
Gross profit margin: 24%
Free cash flow: $2.623 billion (expected for 2024)
Market share: Dominant in key U.S. markets
ROCE: 19.3%
Dividend yield: 4.62%
Revenue growth: 5% YoY
2. D.R. Horton (NYSE: DHI)
D.R. Horton, the largest homebuilder in the U.S., continues to outperform despite headwinds in the housing market. The company's market share in key housing markets remains substantial, and it is steadily expanding into new regions. In the latest quarter, D.R. Horton reported strong financial results, with gross profit margins from home sales reaching 24%, an increase from 23.5% the previous year.
The rising interest rate environment has slowed home buying, but D.R. Horton has managed to navigate these challenges with precision. The company expects free cash flow of $2.623 billion for the fiscal year, and it remains committed to returning value to shareholders through dividends and stock buybacks. With interest rates likely to decrease, D.R. Horton is well-positioned for future growth, offering a compelling long-term investment opportunity.
Key Metrics:
3. Chevron (NYSE: CVX)
Chevron remains an attractive investment in the energy sector, particularly as oil prices have shown signs of stabilizing. The company reported a 5% increase in revenue in its latest quarter, driven by record production in the Permian Basin and the successful integration of PDC Energy. Despite a decline in earnings per share (EPS) due to lower margins on refined product sales and foreign currency impacts, Chevron's fundamentals remain strong.
The company's robust return on capital employed (ROCE) of 19.3% and reinvestment rate of 15% suggest that Chevron can sustain mid-single-digit growth in the long term. Furthermore, Chevron's stock is currently undervalued, trading at a P/E ratio significantly below its five-year average. With a dividend yield of 4.62%, well above its historical average, Chevron offers both growth and income potential, making it an excellent pick for investors seeking exposure to the energy sector.
Key Metrics:
Deletions
There are several deletions this week: BRK.B, SQ, NKE.
In a market poised for potential rate cuts and facing economic uncertainties, META, DHI, and CVX emerge as standout investment opportunities, each representing different facets of the current financial landscape.
Meta Platforms ($META(META)) leads the way in tech innovation with its strong AI investments and attractive valuation, making it a standout in the evolving digital landscape. D.R. Horton ($DHI(DHI)) remains resilient amidst housing market challenges, offering long-term growth potential as interest rates stabilize. Chevron ($CVX(CVX)), trading near its 52-week low, provides a value opportunity with a robust dividend yield and solid growth prospects in the energy sector.
As we navigate this dynamic environment, successful investing will likely require a strategy that considers both cutting-edge advancements and established economic pillars. While these stocks show promise, investors should always align their decisions with personal financial goals, risk tolerance, and ongoing market analysis to effectively capitalize on the opportunities and navigate the challenges in today's ever-evolving investment world.
