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Globe and Mail
10 hours 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.
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
