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Globe and Mail
a day ago
- Business
- Globe and Mail
Value Meets Growth: 3 Artificial Intelligence (AI) Stocks Even Warren Buffett Might Respect
Investors often view value stocks and growth stocks as mutually exclusive. This is likely because growth stocks often trade at premium valuations, and value stocks tend to attract conservative investors, or those focused on income more than growth. That essentially describes investors like Warren Buffett. However, Buffett's Berkshire Hathaway includes stocks such as Amazon and T-Mobile that arguably tend more toward growth than value. Knowing that, one can identify artificial intelligence (AI)-oriented value stocks that might draw an investor like Buffett. These names are three examples. 1. Alphabet Amid Buffett's bent toward technology investors in recent years, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) looks like a stock that could fit Berkshire's portfolio. Alphabet is a longtime leader in the AI field, and that technology helped the company cement its leadership in search, a business that has consistently generated massive free cash flows through its leadership in digital advertising. Nonetheless, it still derives 74% of its revenue from ads, and the rise of ChatGPT has raised questions about Alphabet's business model. With its market share in search now below 90%, it is under pressure to turn to other income sources. Fortunately, it has done just that, deriving 14% of its revenue from Google Cloud. Also, its $45 billion autonomous driving company Waymo also holds the potential to pick up some of the slack. To stay competitive, Alphabet pledged to spend $75 billion in capital expenditures (capex) this year. The company holds around $95 billion in liquidity, and it generated $75 billion in free cash flow over the trailing 12 months, a figure that does not include the capex spending. That investment makes it likely the Google parent will stay competitive. When also considering the P/E ratio of about 19, value investors have tremendous incentive to bet on an AI-driven comeback. 2. Meta Platforms Most investors likely know Facebook parent Meta Platforms (NASDAQ: META) better as a social media stock than an AI leader. One can understand that, given the 3.4 billion people that log on to a Meta-owned social media site every day. That amounts to 42% of the population, a figure that implies it is closing in on market saturation. With the amount of data generated by its users, Meta sees its future in the metaverse and AI. To that end, it has begun to invest heavily in technology and data centers, pledging to spend between $64 billion and $72 billion in 2025 in capex to build its infrastructure. Despite that staggering sum, it can likely afford to make this investment. Meta holds more than $70 billion in liquidity, and it generated $50 billion over the trailing 12 months. Additionally, its P/E ratio is just around 27. When considering that reasonable valuation, its massive potential for AI leadership, and ability to generate cash, Meta is a growth stock priced to drive value-oriented investors. 3. Qualcomm Another surprising value stock is Qualcomm (NASDAQ: QCOM). The AI chip designer has long led the development of smartphone chipsets, but heavy exposure to China and Apple 's plan to develop chipsets in-house have soured many investors on Qualcomm stock. However, investors have good reason to bet on an AI-driven recovery. Qualcomm has diversified into IoT, automotive, PC chips, and data center processors as it prepares for softer smartphone demand. Admittedly, it is not investing as heavily as some tech giants in capex, spending just $1.1 billion over the previous 12 months. Nonetheless, with the DeepSeek breakthrough making low-cost AI more feasible, an AI-driven upgrade cycle could breathe new life into its smartphone business, increasing that segment's 12% annual revenue growth rate. Moreover, its IoT and automotive segments grew revenue at a yearly rate of 27% and 59%, respectively, helping Qualcomm diversify its revenue base more rapidly. Additionally, amid the impending loss of Apple and its China ties, Qualcomm trades at a 15 P/E ratio. That's far below any of the major chip design companies, and with its potential to support AI smartphones and other products, that valuation arguably makes this semiconductor stock too cheap to ignore. Should you invest $1,000 in Alphabet right now? Before you buy stock in Alphabet, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $868,615!* Now, it's worth noting Stock Advisor 's total average return is792% — a market-crushing outperformance compared to171%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 2, 2025 John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Will Healy has positions in Berkshire Hathaway and Qualcomm. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, and Qualcomm. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
Globe and Mail
7 days ago
- Business
- Globe and Mail
Market Factors: A thematic investing approach that's actually working
This edition of Market Factors includes a thematic investing approach uncovering stocks that outperform. New stresses in the U.S. are making it hard to hedge portfolios and a prominent economist talks institutional collapse. As always, we look ahead to important data releases and this time it includes the Bank of Canada decision on interest rates. I generally don't follow thematic investing reports too closely. They are generally chock full of pie-in-the-sky growth numbers that make them marketing exercises rather than investment advice. Citi's thematic equity strategy team led by Drew Petit might be different, given proof of dramatic outperformance using their process. The team track more than 90 investment themes and rank them by growth rate (net income, EBITDA and Sales), operating leverage, valuation, correlation to macroeconomic factors and other factors. Mr. Pettit has been focused on growth themes in 2025 – those with consistently high revenue growth that is converted most efficiently into profits and cash flow. Four themes that currently stand out for these strong growth prospects and also reasonable valuations are Digital Leisure, Contactless Economy, Artificial Intelligence and FinTech. Digital Leisure refers to companies benefiting from online activity including music, gambling, streaming content, social media and e-sports. Contactless Economy refers to the increasing interactions between consumers and technology as it replaces human-to-human contact. Fintech involves mobile payment, blockchain wealth products and bank services. AI has been covered to death recently. For interest's sake, the worst performing growth themes currently are Electric Vehicles, Software as a Service, Metaverse, Video Gaming and Connected Car. The thematic team's analysis of top performing groups is further condensed into 30 recommended stocks they call the Citi Thematic 30. The analyzable data for the list is limited to the beginning of 2024 (I can see five years of strong returns on Bloomberg but only get much less data for performance calculations) but it is impressive. The cumulative return for the equal weighted 30-stock list in the past 17 months is 46.4 per cent, an annualized 31.3 per cent pace. This compares extremely favourably to the MSCI World Index's 27.3 per cent total return (18.8 per cent annualized) and the S&P 500's 28.3 per cent (19.5 annualized). To be fair, the thematic list is much higher risk and will almost certainly underperform its benchmarks in down markets. The stocks on the list include companies in each of the themes mentioned above and also Agriculture Demand, Fossil Fuels, Global Tourism, Pollution Solutions and Value Healthcare Spend. The stocks currently in the Citi Thematic 30 are Alphabet, Equinix, DocuSign, applied Materials, Autodesk, Uber Technologies, Doordash, GoDaddy, Analog Devices, Maplebear, Meta Platforms, AppLovin, ROBLOX, DraftKings, Pinterest, Mastercard, Fiserv, Paypal, HubSpot, SS&C Technologies, IDEX, Hormel Foods, Darling Ingredients, Flowserve, United Airlines, Chart Industries, Republic Services, Gilead Sciences and Labcorp. Goldman Sachs' global market strategist Vickie Chang tried to explain why diversification doesn't work anymore, or at least works very differently in the Donald Trump era. Bond prices routinely go up when equities go down during times markets are concerned about future earnings and economic growth. Equity and bond prices both historically go down during periods of monetary tightening, but the U.S. dollar tends to climb, offsetting losses. Recently, the dollar has weakened along with bonds and equities. Ms. Chang attributes this to the wide variety of market fears including tariff concerns, bond market dysfunction (there's been some weak Treasury auctions), central bank independence and sharply climbing fiscal deficits. The newer concerns of Fed independence and supersized U.S. fiscal deficits will have significant diversification and hedging implications. Longer-dated bonds will offer less risk reduction than previously, for one, and the yield curve can steepen for reasons outside of growth expectations or risk premiums. Hedging against U.S. dollar weakness can likely protect against the new risks and also gold may get another driver of higher prices. I can only guess at the fallout for Canadian markets. Structural weakness in the U.S. dollar would translate into a stronger loonie, obviously, all things being equal. But higher long-term U.S. bond yields imply a bigger bond yield spread between Treasuries and government of Canada bonds. This pattern has historically been correlated with a stronger greenback. I suspect this is why Ms. Chang did not list the Canadian dollar along with the euro, yen and Swiss franc as appropriate U.S. dollar diversifiers. Popular economist Kyla Scanlon posted The Four Phases of Institutional Collapse in the Age of AI late last week. The thoughts are a direct descendant of Daron Acemoglu and James A. Robinson's Why Nations Fail, a must-read book I've discussed before. Ms. Scanlon reminds readers that major economic revolutions like the rise of AI require updates in education, labour laws and financial regulation practices among other institutional changes. Her concern is that this time, change is happening while important institutions are being dismantled, an unprecedented combination. The economist cites four stages of institutional failure – trust erosion, knowledge erosion, capacity erosion and algorithmic substitution. The post is on Substack and there is a request for a paid subscription but the single post should be free to read. Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page. The bitcoin boom challenges anyone who wants to believe that today's market is an efficient judge of value, writes Ian McGugan. David Rosenberg says bond investors need not fear the recent surge in long-term bond yields Tim Shufelt reports on how Trump's trade chaos has foreign creditors backing away from Canada Megacap technology and growth stocks have retaken U.S. market leadership in recent weeks but some investors say that's not going to last, reports Reuters Wednesday is the big day on the domestic calendar as the Bank of Canada will announce its decision on interest rates. Markets are leaning toward no change according to options pricing. Labour productivity will also be released Wednesday. On Friday we'll get the net change in employment. Saputo Inc. on Thursday is the only domestic earnings result of wider interest in the coming week. The U.S. ISM Manufacturing survey results for May were released Monday at 48.5 versus 49.2x expected. Durable goods orders for April are out Tuesday. The ISM services survey for May will be announced Wednesday and April's trade balance data might be of interest when released Thursday in light of tariff news. The change in non-farm payrolls for May will be out on Friday and 130,000 new jobs are forecast. The U.S. earnings calendar is light, starting with cybersecurity expert Crowdstrike Inc. on Tuesday when US$0.665 per share is expected. Lululemon Athletica Inc. (US$2.591) profits will be released Wednesday and Broadcom Inc. (US$1.567) is out Thursday. See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)
Yahoo
25-05-2025
- Business
- Yahoo
2 Vanguard ETFs to Buy With $2,000 and Hold Forever
Value stocks may finally be ready to outperform growth stocks again. The environment also favors the high-quality segment of dividend-paying stocks despite the prospect of higher interest rates. Still, investors should also continue holding a piece of a basic S&P 500 index fund. 10 stocks we like better than Vanguard Index Funds - Vanguard Value ETF › Got an extra couple thousand bucks you know you won't be needing anytime soon, but you aren't quite sure what to do with it? Put it to work in the stock market, of course. And just to ensure your investment is a true buy-and-forget-it forever holding, your best bet is a broad-based exchange-traded index fund, or ETF. These are just large baskets of many different stocks, providing you with permanent diversification that's automatically maintained for you by someone else. To this end, here's a closer look at two ETFs from the Vanguard family of funds that you might want to consider buying for yourself sooner rather than later -- presuming you already own something like the Vanguard S&P 500 ETF (NYSEMKT: VOO), which is based on the S&P 500 (SNPINDEX: ^GSPC) index. While an S&P 500 index fund reflects the collective value and movement of about 80% of the U.S. stock market and is still your best first foundational equity holding, some strategic ETF picks made right now could spice up your overall returns just a bit. Over the course of the past several years, growth stocks have absolutely trounced value stocks. And understandably so. We've seen incredible strides on the technology front, like artificial intelligence and mobile connectivity, in recent years, which have proven lucrative for lots of companies categorized as growth names. Value stocks and their underlying companies haven't necessarily done poorly during this time, to be clear. They just couldn't hold a candle to the gains growth names were making. As the old adage goes, though, nothing lasts forever. As this economic growth cycle matures against a backdrop of higher interest rates (and therefore higher borrowing costs), don't be surprised to see value stocks start to shine compared to growth stocks again. That's not a prospect based on a mere timing-minded gut feeling, either. Franklin-Templeton Funds portfolio manager Sam Peters and his analytical team did the number-crunching, finding that "valuation spreads [between growth and value stocks] have rebounded to historic highs, with value stocks now trading at the 91st percentile relative to growth stocks." He adds, "We believe that such excesses are not sustainable, and that such depressed valuations represent an incredible store of latent energy to power returns once value stocks begin their eventual rebound." It shouldn't take much longer to see this pivot unfurl. Peters concludes that "the debate within markets is intensifying to the point where a new value cycle should crystalize" and that it "will take hold sooner rather than later." There are several ways to position for this impending shift, but the Vanguard Value ETF (NYSEMKT: VTV) is arguably one of the easiest and best. Based on the Center for Research in Security Prices' CRSP US Large Cap Value index, the fund holds a stake in every single major value stock available to U.S. investors -- a little over 300 tickers. Yet, unlike most growth funds these days, this one's very well balanced. No single name makes up more than about 4% of the ETF's total assets. This fund is also cheap enough to stick with for the long haul. Its annual expense ratio is a mere 0.04% of your investment's value. The other Vanguard ETF you might want to make a point of scooping up at this time is the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG). At first blush, this pick seems awfully similar to -- even if not identical to -- the Vanguard Value ETF. It also seems relatively risky in light of the fact that interest rates are rising, pushing bond yields and dividend yields higher by virtue of pushing bond prices and stock prices lower. It would be naïve to dismiss this potential pitfall. Neither worry is quite concerning enough to not take on a stake in this particular exchange-traded fund, though. As for its similarity to the value fund, only three of these two ETFs' top-10 holdings overlap. That's largely because Vanguard's Dividend Appreciation fund is built to mirror the S&P U.S. Dividend Growers index, which requires at least 10 consecutive years of annual per-share dividend increases for inclusion, something a surprising number of names categorized as value stocks haven't accomplished. Regarding the risk that rising rates pose to dividend-paying stocks, don't read too much of that risk into the picture either. OK, if it was an instrument like the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) that prioritizes payout yields over quality stocks, the prospect of higher interest rates might be more concerning. That particular equity ETF trades more like a bond in that it's more subject and sensitive to even the slightest ebb and flow of interest rates. Vanguard's Dividend Appreciation Fund is measurably different, though. While it is dividend-oriented, its stock-selection regimen ultimately finds quality companies capable of growing their yearly dividend payouts for long stretches of time. End result? A better net-performing basket of stocks, when combining the reinvestment of their growing dividends with these tickers' capital gains. Mutual fund outfit Hartford's actually done some extensive research on the matter, determining that since the early 1970s, S&P 500 stocks with consistently growing dividends produce an average yearly gain of just over 10% versus an average annual net gain of less than 5% for non-dividend payers. And ironically, since 1930, it's actually the market's second-highest quintile of dividend payers -- not the top quintile -- that outperformed most often. What gives? Hartford's research analysts conclude this disparity is ultimately rooted in sustainability or lack thereof. They go on to explain these most rewarding dividend-paying companies have also "historically exhibited strong fundamentals, solid business plans, and a deep commitment to their shareholders." Which makes sense. Interested investors should also know that Hartford is particularly bullish on dividend stocks right now despite tariff-induced turbulence, suggesting that sky-high corporate profitability and near-record-low dividend payout ratios bode very well for this sliver of stocks. Before you buy stock in Vanguard Index Funds - Vanguard Value ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Vanguard Index Funds - Vanguard Value ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF, Vanguard Index Funds-Vanguard Value ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy. 2 Vanguard ETFs to Buy With $2,000 and Hold Forever was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
