Forget Tesla: I Think This Stock Should Replace it in the Magnificent Seven - Latest Global News

Forget Tesla: I Think This Stock Should Replace it in the Magnificent Seven

Thanks to its monumental growth over the years, Tesla (NASDAQ:TSLA) has become one of Wall Street’s top performers. Electric vehicle (EV) industry stocks have risen a staggering 1,300% in the last decade alone, significantly outperforming the overall market Nasdaq Composite Index.

But the last few years have been difficult, with Tesla currently trading 58% below its peak price. The company is facing problems that shareholders never thought would happen, and its financials are taking a hit.

I think investors should forget about this top EV stock. Instead, there is another booming company that deserves to replace Tesla in the industry.Magnificent Seven.”

Apply the brakes

To be clear, Tesla’s focus on innovation and disruption, coupled with the long-term growth of electric vehicles, resulted in strong financial performance over time, allowing this company to make it into the Magnificent Seven. But the times have changed.

The days of extremely low interest rates and minimal inflationary pressure are long gone; favorable conditions for practically all companies, but especially for automobile manufacturers. Tesla is facing a new macro reality.

In its most recent quarter (the first quarter of 2024, which ended March 31), the company reported a surprise year-over-year revenue decline of 9%. This came after sales rose just 3.5% in the fourth quarter of the previous year. This is a huge turnaround from the huge double-digit gains that shareholders have become accustomed to.

It’s no surprise that higher interest rates are making buying new cars less affordable. That’s something, founder and CEO Elon Musk points out as this will result in higher monthly payments. The competition is also more intense than ever. Management has waged aggressive price wars to maintain sales of its cars and retain market share.

Musk expects the challenges to continue. In 2024, Tesla is expected to see “significantly lower” unit growth than last year.

Press fast forward

While Tesla appears to be taking a step backwards, there is a thriving company that is moving forward quickly. I’m talking about Netflix (NASDAQ: NFLX). Streaming stock is up 1,150% over the past decade, a nearly identical performance to the EV business. And it deserves a place in the Magnificent Seven’s exclusive list.

Like these seven companies, Netflix has a culture of innovation and disruption, effectively creating a whole new category of entertainment. The company, whose name is also used as a verb, benefits from the ongoing trend towards eliminating rip-offs. It is a well-known brand that operates in the Internet and technology sectors – categories that attract investors.

Growth continues to be critical for Netflix. The company reported a 14.8% increase in revenue in the first quarter, boosted by adding 9.3 million net new subscribers to the platform. These numbers are astronomically higher than they were five years ago.

Leaders deserve credit for being able to successfully pivot into new areas to sustain growth. Netflix’s efforts to crack down on password sharing appear to be bearing fruit. Additionally, the new ad-based subscription tier is seeing huge customer growth.

Netflix is ​​also proving that its scaled business can generate outsized profits. The company’s fixed cost base, primarily for content creation and acquisition, is more than offset by increasing revenue and membership base.

Consequently, Netflix is operating margin rose from 10% in 2018 to 21% in 2023. This is the exact opposite of Tesla, where profitability remains under pressure.

Investors looking to purchase EV stock may want to reconsider. As of this writing, Tesla shares are trading at a Forward P/E ratio of 67.3, well above the Netflix multiple of 33.6. Not only does the streamer deserve to replace Tesla in the Magnificent Seven, but it also appears to be the better stock to buy right now.

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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Tesla. The Motley Fool has a disclosure policy.

Forget Tesla: I think this stock should replace it in the “Magnificent Seven” originally published by The Motley Fool

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