Big Tech stocks notched big gains in November, as the stock market turned in its best monthly performance of 2023. Thanks to solid data that appeared to show a resilient economy and cooling prices, higher hopes for a “soft landing" and eventual rate cuts into 2024 helped to send bond yields lower and equities higher.
However, this week is off to a shaky start, as the final challenge to a potential “Santa Claus rally” will be the Fed's final policy decision of the year, due out on Dec. 13. And in today's session, investors are responding to hawkish comments out of Europe, where central bank officials are warning inflation is not yet tamed.
Against this backdrop, it's an opportune time to dial into some of the market's highest-quality stocks - offering a combination of both growth and income for whatever might happen in the year ahead.
How Are the ‘Magnificent 7’ Doing This Year?
The “Magnificent 7” is a term introduced by Bank of America analyst Michael Hartnett to describe a market-leading group of tech-focused stocks, largely focused now on innovations in artificial intelligence (AI), online gaming, cloud and enterprise computing, and cutting-edge hardware and software.
The Magnificent 7 have easily outpaced the Nasdaq-100 Index ($IUXX) in 2023, with the group averaging a return of 95.62% YTD and the benchmark index averaging a return of 46.81% YTD.
One of the key factors behind this rally was the dominance of AI this year. Each member of the Magnificent 7 has a unique foothold in the AI market, so it isn't a particular shock to see this group of industry giants outperforming the market as this new technological revolution unfolds.
Of the Magnificent 7 stocks, four do not pay regular dividends - namely, Google (GOOGL), Amazon (AMZN), Meta Platforms (META), and Tesla (TSLA) - while AI chip powerhouse Nvidia (NVDA) just debuted a dividend with a modest yield of 0.03%.
So, for those seeking the most powerful combination of growth and income, here are the two best “Magnificent 7” stocks for income investors.
Apple
An innovative leader in the consumer electronics market, Apple (AAPL) designs, manufactures, and sells smartphones, tablets, personal computers, wearables, and more. Its revenue is mainly driven by its iPhone smartphone, and recurring subscription sales for associated services. With its newly announced M3 processors, Mac sales could also soon get a shot in the arm.
Apple’s stock is up 45.6% YTD, and down only about 5% from its current 52-week high of $198.23. The company offers a dividend yield of 0.50% backed by a decade of growth, with a modest payout ratio of 15% - suggesting AAPL has plenty of flexibility to keep investing in growth and paying back shareholders, too.
In its most recent earnings report, Apple beat consensus estimates by announcing total revenue of $89.5 billion, down 1% YoY, and earnings of $1.46 per diluted share, indicating a rise of 13% YoY. Services revenue and iPhone revenue both hit records during the quarter.
Looking ahead, Wall Street is targeting 7% EPS growth for this fiscal year, and 8% for the next.
Analysts are upbeat about Apple’s stock, with a consensus rating of “Moderate Buy” and a mean price target of $201.53 - signifying a potential upside of 7%. Out of the 29 analysts covering the stock, 17 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, and 9 have a “Hold” rating.
Microsoft
Best known for its Office suite of products, Microsoft (MSFT) develops and markets software, hardware devices, and services for both consumers and enterprises. Operating in more than 190 countries, it produces the Windows operating system, Xbox gaming consoles, Azure enterprise software, and has famously invested billions into ChatGPT parent OpenAI.
Microsoft shares are up 51.5% YTD, with a market capitalization of $2.78 trillion. The tech giant offers a dividend yield of 0.80%, with a long history of hiking its shareholder payouts. The current payout ratio is 26.7%, which means MSFT has plenty of room to keep boosting its dividend and investing in growth.
In its latest quarterly earnings report, Microsoft's revenue increased 13% to $56.25 billion, and earnings came in at $2.99 per diluted share, up 27% year-over-year. The biggest boost to revenue during the quarter came from Azure and other Cloud services, up 29%.
For the full fiscal year 2024, analysts are targeting 13.5% EPS growth for MSFT, followed by 14.2% EPS growth in fiscal 2025.
Analysts are very positive regarding Microsoft stock, with a “Strong Buy” consensus rating and a mean price target of $399.14, which indicates potential upside of 9.4% from current levels. Out of the 36 analysts covering the stock, 30 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, and 3 have a” Hold” rating.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
