(0:30) - What Can We Learn From The Nifty Fifty Stocks? (7:20) - Stocks To Keep On Your Watchlist: How Much Should You Be Paying For Growth? (22:45) - Episode Roundup: IBM, X, MCD, JNJ, WMT, CMG, ELF, PANW Podcast@Zacks.com
Welcome to Episode #361 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Tracey went solo to discuss the 1960s and 70s growth stock mania that was known as the Nifty Fifty. It was 50 large cap stocks that were considered “must own” by professional investors. They were growth stocks and it was believed that you should own them no matter what the price.
On average, at the peak of the bull market, many traded with a P/E over 50. But valuation didn’t matter because each company had a strong growth story.
These weren’t companies that didn’t have earnings. Some were dominant in their industries, like IBM and General Electric, and were innovating.
As long as there was growth, what could go wrong?
2 Original Nifty Fifty Stocks
There is no actual list of which companies were in the Nifty Fifty. But there are a bunch of companies that most agree were considered on it. Many of those companies are still in business today.
1. McDonald’s Corp. ( MCD Quick Quote MCD - Free Report)
McDonald’s went IPO on Apr 21, 1965. In the early stages of its growth, it was a popular growth stock in the 1960s and 70s and was considered a part of the Nifty Fifty. But is it still a growth stock today?
McDonald’s earnings are expected to rise 9.3% in 2023 while sales are forecast to grow 7.7%. Not too shabby for a mature global company.
Shares of McDonald’s recently traded at new all-time highs. They are up 76.2% over the last 5 years compared to the S&P 500’s gain of 53.8%. But shares aren’t cheap. McDonald’s is trading with a forward P/E of 26.
Should investors still ignore valuation with McDonald’s and buy at any price?
2. Walmart Inc. ( WMT Quick Quote WMT - Free Report)
Walmart was also a young company in the 1960s and 70s. It went public on Oct 1, 1970.
Walmart earnings are expected to fall 1.4% in fiscal 2024, as the economy slows this year. Sales are forecast to rise 4.2%, however.
Walmart is a mature company in 2023. Growth has slowed. But the shares are not cheap. It trades with a forward P/E of 24.2.
Should Walmart be on your short list?
3 New Nifty Fifty Stocks
What companies would be on a new Nifty Fifty? These would be growth stocks that investors considered to be “must own” and which valuation didn’t matter.
There’s no screen to run to find these stocks. But here are 3 that would surely be in the running for the new list.
1. Chipotle Mexican Grill, Inc. ( CMG Quick Quote CMG - Free Report)
Is Chipotle the McDonald’s of the new Nifty Fifty? This restaurant chain continues to expand. Earnings are expected to rise 34% in 2023 with sales up 14%.
No, Chipotle isn’t cheap. It has a forward P/E of 47.3.
Shares of Chipotle are up 355% over the last 5 years and are hitting new highs.
Would you pay any price in order to own Chipotle?
2. e.l.f. Beauty, Inc. ( ELF Quick Quote ELF - Free Report)
e.l.f. Beauty, the cosmetics and skin care company, seemingly hits new all-time highs virtually every day. Shares are up 93.5% this year. Over the last 5 years, shares of e.l.f. Beauty have gained 453%, outpacing the S&P 500, which is up just 53.8% during that same time.
But it’s not cheap. e.l.f Beauty now trades with a forward P/E of 59. Earnings are expected to be up in fiscal 2024, rising 7.2% while sales are expected to surge 25%.
Are you buying e.l.f. Beauty even at these valuations?
3. Palo Alto Networks, Inc. ( PANW Quick Quote PANW - Free Report)
Palo Alto Networks has it all. Earnings are expected to rise 67.9% in fiscal 2023. Sales are forecast to rise 25.3% this year as well.
Palo Alto Networks is even a Zacks Rank #1 (Strong Buy) as analysts have been raising earnings estimates.
But it’s not cheap. It has a forward P/E of 53.6 and a P/S ratio of 10.7.
How much are you willing to pay for Palo Alto Networks’ growth?
What else do you Need to Know about the New Nifty Fifty Stocks?
Listen to this week’s podcast to find out.