Are these the 2 best ‘Magnificent Seven’ stocks to buy right now?

From the beginning of 2023, S&P 500 and Nasdaq Composite Index both performed extremely well despite the latest fall. Much of the credit for the market’s functioning can go to the ongoing AI boom, which has helped raise the so-called “Magnificent seven” stocks.

But right now, one can easily argue that these companies are trading at expensive valuations. For investors looking to put some money to work in what are considered to be disruptive, technology-driven and industry leaders, I can see why the current situation could be discouraging.

It is best to remain optimistic. I think two of the Magnificent Seven actions, Alphabet (GOOGL 1.01%) (GOOG 0.95%) and Meta platforms (META 1.60%)they actually look like smart buying opportunities today. Let’s take a closer look.

Giants of digital advertising

It is almost impossible to overstate the extent and dominance of these two businesses. Alphabet, which owns some of the most popular Internet properties on Earth, has six products and services that are each used by 2 billion people. Its flagship offering, Google Search, has a virtual version monopoly on the market, controlling 91% of the share.

But don’t ignore Meta’s position. The social media powerhouse ended the second quarter with 3.27 billion daily active users. That number continues to rise, up 7% from the year-ago period.

I would argue that because of their unmatched scale, there may be no two companies that are as immune to competitive threats as Alphabet and Meta. Even if an entrepreneur had unlimited capital to develop a new search engine or social media app, it seems impossible that they would be able to bring in users in massive amounts.

This clearly shows that Alphabet and Meta benefit strongly network effectshaving probably the widest economic moats around. And their ability to collect data is a huge advantage.

Not surprisingly, advertisers love it. That’s why these two companies together generate 55% of digital advertising revenue worldwide. According to Grand View Research, the industry is expected to grow at a compound annual rate of 15.5% between now and 2030, leading to significant expansion potential for Alphabet and Meta, especially as they continue to invest aggressively in intelligence artificial.

Financial performance

Alphabet and Meta have been great investments in the past. This is a direct result of their fantastic financial performance, with both companies posting strong revenue and historic net income growth.

Their profitability is over the top. Over the past five years, Alphabet’s and Meta’s operating margins have averaged a ridiculous 26.6% and 35.1%, respectively. And in the three-month period ended June 30, each produced tens of billions of dollars in operating cash flow.

The balance sheets are also in pristine condition. Alphabet has a net cash balance of $87 billion, while Meta has $40 billion. Investors can sleep well at night knowing that there is almost no financial risk in owning these companies. Additionally, they should always be able to operate from a position of strength, playing offensively and investing in growth regardless of the economic climate.

When it comes to return on capital, both Alphabet and Meta have typically leaned on share buybacks. However, they both started paying dividends recently, yielding under 0.5%.

Reasonable ratings

It’s not too late to pick up these dominant businesses. In fact, these are the two cheapest Magnificent Seven stocks to buy based on a popular valuation.

At the time of writing, Alphabet and Meta are trading at forward P/E ratios of 21.3 and 23.7 respectively, both considerable reductions to Nasdaq-100 Index. Given all the outstanding qualities described above, these two stocks look like definite buying opportunities.