Are These the 2 Best "Magnificent Seven" Stocks to Buy Right Now?

Since the start of 2023, the S&P 500 and Nasdaq Composite Index have both performed extremely well despite the latest dip. A lot of credit for the market's run can go toward the ongoing AI boom that has helped lift the so-called " Magnificent Seven " stocks.

But right now, it can easily be argued that these companies trade at expensive valuations. For investors looking to put some money to work in what are considered to be disruptive, tech-driven, and industry-leading enterprises, I can see why the current situation could be discouraging.

It's best to remain optimistic. I believe two of the Magnificent Seven stocks, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META) , actually look like smart buying opportunities today. Let's take a closer look.

Digital ad giants

It's almost impossible to overstate the wide reach 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 monopoly on the market, controlling 91% share.

But don't discount Meta's standing. The social media powerhouse ended the second quarter with a whopping 3.27 billion daily active users. This number continues rising, increasing by 7% compared to the year-ago period.

I'd argue that because of their unmatched scale, there might be no two businesses that are as immune from 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 could bring on users in massive quantities.

This clearly shows that Alphabet and Meta benefit from powerful network effects , perhaps having the widest economic moats around. And their ability to collect data is a massive advantage.

Unsurprisingly, advertisers love this. That's why these two companies combined generate 55% of worldwide digital ad revenue. According to Grand View Research, the industry is projected to grow at a compound annual rate of 15.5% between now and 2030, leading to meaningful expansion potential for Alphabet and Meta, especially as they continue to invest aggressively in artificial intelligence.

Financial prowess

Alphabet and Meta have been wonderful investments in the past. This is a direct result of their fantastic financial performance, with both businesses registering strong revenue and net income growth historically.

Their profitability is through the roof. In 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 that ended June 30, they 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 power, playing offense and investing in growth regardless of the economic climate.

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

Reasonable valuations

It's not too late to scoop up these dominant businesses. In fact, they are the two cheapest "Magnificent Seven" stocks to buy based on a popular valuation metric.

As of this writing, Alphabet and Meta trade at forward P/E ratios of 21.3 and 23.7, respectively, both sizable discounts to the Nasdaq-100 index . Considering all of the outstanding qualities described above, these two stocks look like no-brainer buying opportunities.

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. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy .