Key Points

• Honeywell is getting closer to spinning off the first of three stand-alone companies.

• The company’s full-year guidance showcases solid growth and tariff resilience.

• Its stock is an excellent value for those who believe the split will unlock advantages.

• 10 stocks we like better than Honeywell International ›

With just 30 components, the Dow Jones Industrial Average isn't as representative of the broader market as the S&P 500 or Nasdaq Composite. But it's still an excellent resource for finding high-quality, industry-leading companies, many of which pay dividends.

After nearly making an all-time high in July, Dow Jones component Honeywell International (NASDAQ: HON) is down 9.8% in the past month. The sell-off may come as a surprise, given that Honeywell delivered a great quarter, raised its guidance, and is producing high operating margins across its business segments.

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Here's why the dividend stock is a great buy in August.

Honeywell's conglomerate days are rightfully coming to a close

Shortly after becoming CEO in June 2023, Vimal Kapur launched a comprehensive portfolio review of Honeywell's businesses to try to give the once thriving industrial conglomerate a jolt. The company had been languishing, failing to capitalize on its three highest-conviction megatrends: automation, the future of aviation, and the energy transition.

Kapur and his team concluded that the best way to unlock value for shareholders was to split the company into three separate publicly traded businesses: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. In July, Honeywell said it is on track to spin off Solstice Advanced Materials for the fourth quarter of 2025 and the other two companies in the second half of 2026.

The conglomerate structure isn't inherently bad. In fact, it can work well when it provides diversification and resources to help each business segment perform.

For example, Berkshire Hathaway owns insurance businesses; retail, service, and manufacturing companies; the BNSF railroad; the utility and energy infrastructure company Berkshire Hathaway Energy, and more. By owning quality businesses across various industries, Berkshire accesses different growth opportunities and end markets. And by not overly managing its businesses and having a leadership structure with very little red tape, it can avoid many of the downsides of a conglomerate.

Honeywell's decision to split into three companies is a way of admitting that being a big and bulky company with a lot of moving parts had become a net negative. And there's reason to believe each business can perform better as a stand-alone company.

But with roughly a year to go until the full separation is complete, Honeywell investors are caught in no-man's-land. The stock is down 8.3% since it published a news release on Dec. 16, 2024, announcing the decision to split into three companies.

Honeywell has a compelling valuation and quality dividend

Buying the stock now is based on the belief that the company is a good value and will be an even better one once it splits into three companies.

Honeywell reported 8% sales growth and exceeded the high end of its prior guidance in adjusted earnings per share (EPS) with a 10% increase. Its updated 2025 guidance calls for $40.8 billion to $41.3 billion in revenue, $10.45 to $10.65 in adjusted EPS, and $5.4 billion to $5.8 billion in free cash flow (FCF) -- or $8.43 to $9.05 in FCF per share. On its second-quarter 2025 earnings call, management said that it is committed to offsetting tariff impacts with productivity, pricing, and alternative sourcing.

Based on the stock price at the time of this writing of $216.31 per share, investors are paying just 20.5 times the midpoint of adjusted 2025 earnings and 24.7 times FCF. That's a steep discount to Honeywell's five-year median price-to-earnings ratio (P/E) of 25.5 and price-to-FCF of 29.5, and a good value compared to its 10-year median P/E of 23.6 and 24.5 price-to-FCF.

Or put another way, Honeywell is already an attractive valuation. If the split is a success and unlocks value, it will look like a steal at these levels in hindsight.

The company has a 14-year streak of boosting its dividend, which yields 2.1% at the time of this writing. It remains to be seen what the dividend will look like post-split, but Honeywell has the FCF needed to support future dividend raises: The midpoint of its 2025 projected FCF per share is nearly double its $4.52 its annual payout.

Honeywell is a buy before its breakup

The decision to split into three companies is the right move for investors, and the stock is a good value right now, making it a strong buy. Given how different aerospace is from industrial automation and sustainable materials, some investors may prefer to wait until post-breakup to invest in the business segment that is most appealing to them.

However, it's worth noting that the valuations of each stand-alone company could vary based on their growth. For example, Honeywell Automation's potential in artificial intelligence may lead this segment to fetch a higher valuation than the aerospace business, where even industry leaders tend to command value stock P/E ratios.

All told, investors who wouldn't mind owning shares in all three stand-alone companies may want to consider buying Honeywell now before the breakup.

Should you invest $1,000 in Honeywell International right now?

Before you buy stock in Honeywell International, consider this:

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $660,783!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,122,682!*

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*Stock Advisor returns as of August 13, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Key Points

• Nvidia stays red hot, pushing the S&P 500 and Nasdaq toward all-time highs.

• Going forward, gaining trillions in market cap will be easier on a percentage basis.

• The chipmaker’s sustained success depends on a handful of key customers.

• 10 stocks we like better than Nvidia ›

Nvidia (NASDAQ: NVDA) has continued to soar higher after becoming the first company to surpass $4 trillion in market capitalization on July 9. On Aug. 7, Nvidia hit a new all-time intraday high and reached $4.48 trillion in market cap -- just shy of the $4.5 trillion mark.

Nvidia's meteoric rise isn't just a stock story; it's a market story. Nvidia is so large that it can single-handedly move the Nasdaq Composite or S&P 500 with a big gain. Gaining close to $500 billion in market value is like creating a company the size of Netflix out of thin air -- which is saying something, considering Netflix is the 16th-largest S&P 500 component by market cap. As Nvidia and its megacap peers go, so do broader market gains.

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Here's why I fully expect the growth stock to surpass $5 trillion in market value and why Nvidia has a clearly defined runway for future success.

The power of percentages

Three years ago, Nvidia's market value was under half a trillion. It took a medley of investor optimism, earnings growth, and the dawn of a new age in artificial intelligence (AI) to pole-vault Nvidia over $4 trillion in market cap to become the most valuable company in the world. But Nvidia's road to $5 trillion and beyond will be much easier.

Going from $0.5 trillion to $4 trillion is an eightfold gain, whereas going from $4 trillion to $5 trillion is just a 25% gain. It's an unprecedented amount of value creation, but on a percentage basis it's not asking a lot over a few years. However, if Nvidia's earnings growth rate slows, investors may be less willing to pay such a premium price for the stock.

Nvidia commands a price-to-earnings ratio of 58 -- which is far higher than most of its megacap peers. But Nvidia is growing earnings much faster, so it can back up that valuation. However, if Nvidia were to slow down to levels of a company like Microsoft -- which has achieved 15% revenue growth over the last few years with net profit margins around 36% -- then Nvidia's valuation could compress.

The stock's P/E could come down, its earnings growth rate could slow, and it could still be an excellent investment, continuing to hit market-cap milestones. But the bigger question is, where are the earnings going to come from?

Nvidia's "big four"

Arguably the simplest reason why Nvidia can continue steadily growing over time is that its customers are some of the best companies in the world.

In Nvidia's quarterly 10-Q filings, the company typically has a section titled Concentration of Revenue. In Nvidia's most recent 10-Q from May -- which was the first quarter of its fiscal 2026 -- the company said that sales to one direct customer, Customer A, represented 16% of total revenue for the quarter. Customer B was 14%, sales to another direct customer were 13%, and a fourth customer was 11%.

All four customers' revenue was attributable to Nvidia's compute and networking segment -- which is primarily high-performance graphics processing units (GPUs) for data centers and associated hardware and software to handle AI workloads, like products that connect GPUs together and help the system communicate.

Combined, these customers made up a staggering 54% of total quarterly revenue. While Nvidia doesn't directly disclose who these customers are, it's highly likely they are Amazon, Microsoft, Alphabet, and Meta Platforms -- all of which are using Nvidia chips to power their AI data centers, infrastructure, and services.

Outside of these "big four," there are plenty of companies that are rapidly expanding their cloud and AI aspirations, like Oracle through Oracle Cloud Infrastructure. Tesla is a big Nvidia customer, using its chips for its autonomous driving models. OpenAI is also a major indirect customer of Nvidia through the Microsoft Azure OpenAI service, which is a platform for using and developing OpenAI models.

Normally, revenue concentration is a red flag because it means one or two customers can tank results if they pull back on spending. But in the case of Nvidia, it's arguably a strength because its top customers have exceptional balance sheets, growing earnings, and ample free cash flow. In other words, they have the resources and innovation pathways to steadily grow their spending over time, and in turn, contribute to Nvidia's earnings growth.

Nvidia needs AI spending to pay off

Nvidia's road to $5 trillion in market cap will be easier on a percentage basis now that it is hovering around the $4.5 trillion mark. However, for Nvidia to continue being a winning stock, its top customers have to get a worthwhile return on their investments. In other words, the AI market must continue to grow, and Nvidia must lead it from a compute and networking standpoint.

Therefore, Nvidia investors may want to consider connecting the dots by following what its top customers are saying in their investor presentations and quarterly results. If they remain enthusiastic about AI and continue boosting their budgets for it, then Nvidia stands to benefit. However, Nvidia's earnings and stock price could take a big hit if the spending cycle goes from expansion to a slowdown.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $653,427!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,119,863!*

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Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• The Vanguard Value ETF has a much lower valuation than the Vanguard S&P 500 ETF.

• The Value ETF is a wealth compounder first and a passive income tool second.

• The ETF can be an effective tool for investors who don’t want to amplify their exposure to mega-cap growth stocks.

• 10 stocks we like better than Vanguard Index Funds - Vanguard Value ETF ›

The S&P 500 (SNPINDEX: ^GSPC) has historically been a fantastic way to compound wealth -- generating annualized total returns of 9% to 10%. The proliferation of low-cost index funds and exchange-traded funds (ETFs) has made it easier than ever to invest in the S&P 500 without racking up high fees.

The Vanguard S&P 500 ETF (NYSEMKT: VOO) -- one of the largest S&P 500 index funds by net assets -- has an expense ratio of just 0.03% -- or 3 cents for every $100 invested. When I first began investing, it was normal to see flat fees per stock trade of around $5 to $10. So fees and expense ratios are no longer a major drag on returns for investors who regularly pour their savings into equities.

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One issue with buying the S&P 500 is that it doesn't have a high yield. Today's top S&P 500 companies are growth stocks that have yields well below 1% or don't pay dividends at all -- a stark contrast to the days when the most valuable companies were oil and gas giants, industrials, or consumer staples behemoths with high yields.

As a result, the yield of the S&P 500 has fallen to just 1.2%. What's more, the valuation of the S&P 500 has gotten more expensive as stock prices have outpaced earnings growth.

Here's why investors looking to use passive income as a key way to achieve their financial goals may want to consider buying the Vanguard Value ETF (NYSEMKT: VTV) over the Vanguard S&P 500 ETF.

A lower yield at a better valuation

The Vanguard Value ETF sports an expense ratio of 0.04%, so it has just one cent more in annual fees per $100 invested than the Vanguard S&P 500 ETF. It also offers a full percentage point higher in 30-day SEC yield at 2.2% compared to 1.2% for the S&P 500 ETF.

In addition to having a higher yield, the Value ETF sports a 19.6 price-to-earnings (P/E) ratio (as of June 30) and holds 335 stocks compared to a 27.2 P/E ratio (also as of June 30) and 505 holdings for the S&P 500 ETF.

The Value ETF's higher yield and significantly lower valuation may appeal to investors looking to avoid paying a premium for the top stocks that are leading the S&P 500.

A different cast of characters

The Value ETF's higher yield and lower valuation result from its composition.

	Vanguard Value ETF		Vanguard S&P 500 ETF
Holding Rank	Company	Weighting	Company	Weighting
1	Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B)	4%	Nvidia (NASDAQ: NVDA)	7.3%
2	JPMorgan Chase (NYSE: JPM)	3.6%	Microsoft (NASDAQ: MSFT)	7%
3	ExxonMobil (NYSE: XOM)	2.1%	Apple (NASDAQ: AAPL)	5.8%
4	Walmart (NYSE: WMT)	2%	Amazon (NASDAQ: AMZN)	3.9%
5	Procter & Gamble (NYSE: PG)	1.7%	Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)	3.5%
6	Oracle (NYSE: ORCL)	1.7%	Meta Platforms (NASDAQ: META)	3.1%
7	Johnson & Johnson (NYSE: JNJ)	1.7%	Broadcom (NASDAQ: AVGO)	2.5%
8	Home Depot (NYSE: HD)	1.7%	Berkshire Hathaway	1.7%
9	AbbVie (NYSE: ABBV)	1.5%	Tesla (NASDAQ: TSLA)	1.7%
10	Bank of America (NYSE: BAC)	1.4%	JPMorgan Chase	1.5%
	Total	23.1%	Total	38%

Data source: Vanguard.

Aside from Berkshire Hathaway and JPMorgan Chase, there are no other companies that overlap the top 10 holdings in the Value ETF and S&P 500 ETF.

You'll also notice that the S&P 500 is much more top-heavy -- meaning that just a handful of names can move the index. Whereas the Value ETF is more balanced and not as dominated by just 10 companies.

Far more than a passive income vehicle

Over the last decade, the Value ETF has gone up 111.5% and has a total return of 173.5%. Meaning that capital gains have made up a much higher percentage of the total return than dividend income. The investment thesis centers around the companies it holds rather than being all about yield, a stark contrast to ETFs that prioritize passive income over upside potential.

The JP Morgan Nasdaq Equity Premium ETF (NASDAQ: JEPQ) sells covered call options on the Nasdaq-100 as a way to generate income -- which provides a sizable stream of monthly payouts while capping the upside potential of the Nasdaq-100 moving higher. The fund sports an 11.2% 30-day SEC yield (as of June 30), so it could be a great way for investors who are primarily focused on passive income. However, the Value ETF offers a way to get a higher yield than the S&P 500 without having any cap on upside potential.

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) doesn't use call options to achieve its high 3.9% yield. But many of its holdings are arguably lesser quality companies than what you'll find in the Value ETF.

The Vanguard Value ETF remains a top fund to buy now

The Value ETF is a good buy if you already own many of the top growth stocks in the S&P 500 and are looking to diversify your portfolio into different companies and boost your passive income.

It's also a good option for investors who want to participate in the broader market and collect more passive income than the S&P 500.

While there are plenty of ETFs that offer higher yields than the Value ETF, I would argue that the quality of companies in the ETF makes it one of the best ways to consistently collect more passive income than the index.

Should you invest $1,000 in Vanguard Index Funds - Vanguard Value ETF right now?

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 10 best stocks 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 $636,563!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,108,033!*

Now, it’s worth noting Stock Advisor’s total average return is 1,047% — a market-crushing outperformance compared to 181% 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 August 4, 2025

Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Daniel Foelber has positions in Nvidia and Procter & Gamble. The Motley Fool has positions in and recommends AbbVie, Alphabet, Amazon, Apple, Berkshire Hathaway, Home Depot, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Oracle, Tesla, Vanguard Index Funds-Vanguard Value ETF, Vanguard S&P 500 ETF, and Walmart. The Motley Fool recommends Broadcom and Johnson & Johnson and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• Lockheed Martin has been lagging other major defense contractor stocks.

• It is taking action to address underperforming aspects of its business.

• The stock's valuation is compelling and the dividend yield is generous.

• 10 stocks we like better than Lockheed Martin ›

Lockheed Martin (NYSE: LMT) shares fell a whopping 10.8% this past Tuesday in response to the defense contractor's second-quarter 2025 earnings and updated guidance. Lockheed badly missed analyst earnings estimates for the quarter due to a flurry of (mostly) one-time charges.

Despite the sell-off, here's why Lockheed is a no-brainer dividend stock to buy now.

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More losses for Lockheed Martin

Lockheed reported pre-tax losses on programs of $1.6 billion and other charges of $169 million, which dragged down its earnings per share (EPS) by $5.83 -- leading to net EPS of just $1.46. If program losses sound familiar, that's because Lockheed reported a similar quarter in January, when the stock fell 9.2% in a single session after Lockheed incurred $1.72 billion in write-offs.

The company does the vast majority of its business with the U.S. government, and to a lesser extent, approved allies. As such, investors can be left in the dark regarding classified national security programs. One-off charges usually don't impact a long-term investment thesis unless they signal prolonged challenges. Lockheed is testing investor patience because two out of its last three quarters drastically underperformed expectations due to one-off charges.

In its second-quarter press release, Lockheed attributed the program losses to its new review process, which is causing the company to reevaluate legacy programs and address associated risks. However, Lockheed believes that the review process is a necessary step to improve execution.

Results are still decent despite ongoing challenges

Lockheed Martin is a stodgy company with long-term contracts spanning fighter jets and other aircraft, missiles, weapons, combat systems, helicopters, space systems (primarily satellites), and more. Not every program is a high-margin cash cow. And that's been known in Lockheed's results for a while, given its slow growth. So while its program losses jump out in headline EPS figures, they are really just symptoms of a bigger problem.

Long-term investors would prefer a company address issues instead of letting them fester. But for now, Lockheed's stock is selling off while many of its peers are up big year to date and making all-time highs. To make matters worse, industrials have been the best-performing sector so far in 2025.

BA data by YCharts

Lockheed's underperformance in a hot sector is akin to a software company missing the boat on artificial intelligence. Earlier this year, Boeing beat Lockheed Martin for a major fighter jet contract that could be worth tens of billions of dollars over an extended period of time.

Growth at Lockheed has stagnated, as evidenced by a paltry 12% increase in revenue in the last five years and lower operating margins. Meanwhile, its peer, RTX, continues to generate solid organic growth. Northrop Grumman just hit an all-time high after beating earnings expectations and raising its full-year guidance.

It would be one thing if other major defense contractors were experiencing similar challenges as Lockheed, but this is far from the case. Lockheed isn't in a full-blown turnaround. Rather, it is addressing weaker areas of its business to return to growth.

The good news is that Lockheed is maintaining its full-year 2025 guidance for sales, cash from operations, capital expenses, free cash flow (FCF), and share repurchases -- illustrating that these changes aren't impacting its long-term investments or plans to return capital to shareholders.

Granted, Lockheed's low-single-digit revenue guidance and high-single-digit FCF guidance is far from exceptional. But it still has a healthy backlog to rely on to support its targets.

A value stock with a high yield

Lockheed isn't at the top of its game, but it is addressing program losses across its segments to improve its processes and operations going forward. In the meantime, the stock's dividend yield has pole-vaulted to the top of the industry. In fact, Lockheed is the only major defense contractor with a dividend yield above 2%.

LMT Dividend Yield data by YCharts

Lockheed's valuation will appear more expensive in the near term due to program losses dragging down EPS. But if the internal review leads to higher margins over time, the stock will look dirt cheap.

Management is guiding for 2025 sales of $73.75 billion to $74.75 billion and free cash flow of $6.6 billion to $6.8 billion. Based on the midpoint of those forecasts, and Lockheed's market capitalization of $96.2 billion at the time of this writing, the company would have a price-to-sales ratio of just 1.3 and a price-to-FCF ratio of 14.4.

For context, Lockheed's 10-year median is 1.7 for the P/S ratio and 19.2 for price-to-FCF ratio -- illustrating just how beaten-down the stock is right now. Lockheed arguably deserves to trade at a discount to its historical averages, given the company isn't delivering on shareholder expectations. However, the stock could be a great option for value investors who are willing to give the company time to recover.

Lockheed is a buy for patient investors

Unlike some one-off impairment charges, Lockheed's program charges are indicative of a larger issue at the company. Therefore, a sell-off was warranted. However, investing is more about where a company is going, rather than where it has been. And with Lockheed now beaten down, investors are getting an opportunity to scoop up shares at their lowest valuation in years.

Lockheed's discounted valuation and 3.2% dividend yield make it one of the best choices in the defense industry for value investors looking to boost their passive income. The mounting program losses quantify the extent of issues at the company, but at least Lockheed is ripping off the proverbial bandage and reviewing these issues rather than letting them persist.

Given Lockheed's diversified business model and strong cash flow, the stock appears to be a safe bet for income investors seeking to add stability to their passive income stream.

Should you invest $1,000 in Lockheed Martin right now?

Before you buy stock in Lockheed Martin, 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 Lockheed Martin 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 $636,628!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,063,471!*

Now, it’s worth noting Stock Advisor’s total average return is 1,041% — a market-crushing outperformance compared to 183% 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 July 21, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends L3Harris Technologies. The Motley Fool recommends Lockheed Martin and RTX. The Motley Fool has a disclosure policy.

Key Points

• Nvidia and Microsoft are knocking on the door of $4 trillion market caps.

• Nvidia deserves a lot of credit for being the backbone behind AI development.

• AI has added to Microsoft’s investment thesis rather than redefining it.

On Dec. 26, 2024, Apple crossed $3.9 trillion in market capitalization, putting it just 2% away from becoming the world's first $4 trillion company. But it didn't get there. Apple has recovered in recent weeks but remains down big year to date, whereas Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT) just made new all-time highs.

Here's why Nvidia will likely become the first company to surpass $4 trillion in market value, what Nvidia and Microsoft must do to continue rising in price, and whether either growth stock is a buy now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

A new frontrunner

In less than three years, Nvidia has gone from billions to trillions in market cap. And now, it is the closest company to $4 trillion -- a little over 3% away as of market close on July 3.

NVDA Market Cap data by YCharts.

Nvidia will likely reach $4 trillion before Microsoft simply because it is closer to the threshold, and its stock is more volatile. Nvidia is now up over 18% year to date (YTD), but it was down around 30% YTD in early April during the worst of the tariff-induced sell-off. So it's not unreasonable that the stock could move a few percentage points higher to pole-vault its market cap above $4 trillion.

The better question isn't whether Nvidia or Microsoft will hit $4 trillion in market cap but rather what each company must do to justify that valuation.

An earnings-driven rally

The two biggest drivers of stock-price appreciation are earnings growth and investor sentiment. If earnings are increasing, investors will likely pay a higher price for the company's shares. But if investors expect the pace of earnings growth to accelerate, then they may be willing to give a stock a premium valuation.

Nvidia and Microsoft have been such strong performers in recent years because they are growing earnings and investors are willing to pay a premium price for these companies relative to their earnings. Nvidia went from making under $10 billion in annual net income to a staggering $76.8 billion in just a few years. Microsoft has doubled its net income over the past five years, and its stock price has more than doubled as well.

NVDA data by YCharts.

For Nvidia and Microsoft to continue being good investments going forward, both companies must demonstrate that their earnings growth is sustainable and not temporary.

Nvidia's valuation is still reasonable

Nvidia has greatly benefited from the rapid rise of big tech spending on artificial intelligence (AI). Nvidia has a dominant market share in providing high-powered graphics processing units (GPUs) for data centers and associated AI solutions for enterprises.

Due to limited supply and high demand, Nvidia can charge top dollar for its AI offerings, which allows it to convert over half of its sales into pure profit. And because Nvidia's customers are some of the most financially secure, big-budget companies in the world (like Microsoft), then Nvidia knows its customers can afford to spend a ton on AI.

However, that wouldn't be the case if challenges arise for key Nvidia customers if there is an industrywide slowdown or if competition comes along and erodes Nvidia's margins. Buying Nvidia now is a bet that the company can continue growing its earnings even if its margins gradually decline over time.

The good news is that Nvidia doesn't have to double its earnings every year to be a great buy. Even if it grows earnings at, let's say, 25% per year, it could still reduce its valuation over time and be a market-beating stock. Here's a look at how Nvidia's price-to-earnings (P/E) ratio would go from over 50 to under 35 in five years if it grew earnings at 25% per year, and the stock price gained an average of 15% per year.

Metric	Current	Year 1	Year 2	Year 3	Year 4	Year 5
Stock Price (15% Annual Growth)	$159.20	$183.08	$210.54	$242.12	$278.44	$320.21
Earnings Per Share (25% Annual Growth)	$3.10	$3.88	$4.84	$6.05	$7.57	$9.46
P/E Ratio	51.4	47.2	43.5	40	36.2	33.8

Under these assumptions, Nvidia's stock price roughly doubles in five years, but its earnings triple, so the P/E ratio falls considerably.

The key takeaway is that Nvidia doesn't have to sustain its parabolic growth to be a good investment. However, the stock could sell off dramatically if investors believe an unforeseen risk will interrupt its growth trajectory. We got a taste of that in April when Nvidia estimated it would incur multibillion-dollar charges due to tariffs, and the stock price nose-dived in a short period.

In sum, investors should only consider Nvidia if they are confident in sustained AI spending and the company's ability to pivot as the market matures.

Far from a one-trick pony

Microsoft may be a better choice for investors seeking a more balanced tech stock to purchase. Microsoft has a lower P/E than Nvidia, and for good reason, because it isn't growing as quickly. However, Microsoft also doesn't need a lot to go right for it to continue growing steadily over time.

The vast majority of Nvidia's earnings are directly tied to AI. Microsoft has a diverse earnings profile, encompassing cloud computing, software, hardware, platforms such as GitHub, LinkedIn, and Xbox, as well as other areas. AI is accelerating Microsoft's earnings growth and expanding its earnings, but the company can still do extremely well even if AI investment slows and the industry matures.

It's also worth mentioning that Microsoft routinely buys back its stock and has raised its dividend for 15 consecutive years. So it has a more balanced capital-return program than Nvidia, which rewards shareholders by growing the core business rather than directly returning capital.

Two solid buys for long-term investors

Nvidia and Microsoft are exceptional companies. It wouldn't be surprising to see them both surpass $4 trillion market caps and continue building from there. However, investors should be mindful that both companies are seeing their stock prices rise faster than their earnings are growing, which puts pressure on them to bridge the gap between expectations and reality.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, 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 Nvidia 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 $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $976,677!*

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*Stock Advisor returns as of June 30, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• Alphabet would be the most valuable company in the world if it were valued similarly to its peers.

• It seems that earnings don't directly translate into higher share prices over the short term.

• However, at current levels, Alphabet's stock is too undervalued for investors to ignore.

The stock market cares more about future earnings potential than the past -- and that may be why Nvidia, Microsoft, Apple (NASDAQ: AAPL), and Amazon (NASDAQ: AMZN) are all worth more than Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) today even though Alphabet is the only S&P 500 stock with over $100 billion in trailing-12-month net income.

Here's why the market views Alphabet's earnings differently than other megacap growth stocks, and whether Alphabet is a buy now.

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More than just a number

Earnings are one of the most important metrics investors use to value a company. How much profit a company generates is an integral part of an investment thesis. But so are expectations for future profits.

GOOGL Net Income (TTM) data by YCharts

Although net income is just a number, there are nuances worth understanding. A leading company that operates in a growing industry with competitive advantages, high profit margins, and a great balance sheet will have far higher-quality earnings than a company operating in a declining or even failing industry that is cyclical and capital-intensive.

This concept is why even the best oil and gas companies, like ExxonMobil and Chevron, sport such inexpensive valuations. Their earnings aren't high-margin. Generating them takes a lot of capital. And oil and gas consumption may look much different decades from now than today. This doesn't mean ExxonMobil and Chevron are bad companies. In fact, both are excellent dividend stocks. It just means investors are unlikely to pay the same price for these companies relative to their earnings as, say, an ultra-fast-growing company with high margins like Nvidia.

Alphabet doesn't have a capital-intensive business model. It generates high margins and has diverse revenue streams from its services like Google Search, Google Network, YouTube, Android, Google Cloud, and more. It also has a phenomenal balance sheet with more cash, cash equivalents, and marketable securities than debt. Despite these advantages, Alphabet sports a price-to-earnings (P/E) ratio and forward P/E ratio that are far lower than Nvidia, Microsoft, Apple, and Amazon.

NVDA PE Ratio data by YCharts

Expectations drive valuations

This discounted valuation is why Alphabet is worth less than its peers despite making more profit. Alphabet's valuation is much cheaper than some of its peers because investors are less optimistic about its future earnings prospects.

Nvidia is powering the future of artificial intelligence (AI) with its graphics processing units for data centers. Big tech continues to spend on AI, so investors are optimistic that demand for Nvidia's products will continue growing.

Microsoft is integrating AI into its software and is the No. 2 player in cloud computing behind Amazon. In contrast, Alphabet's Google Cloud is a distant third in market share.

Apple isn't growing quickly, but the company has such a dominant, vertically integrated ecosystem of consumer products and services that investors are willing to pay a premium price for the stock relative to its earnings.

Alphabet makes the majority of its operating income from Google Search. Unlike Amazon (and arguably Microsoft), cloud is not the most valuable aspect of the company. Alphabet's AI plays mainly come from Google Cloud and its "Other Bets" category, which consists of projects like self-driving company Waymo and AI research lab DeepMind, which is behind the chatbot Gemini.

In sum, the market may be viewing Alphabet's business model as more vulnerable to technological advancements in AI than other megacap growth companies that are clearly benefiting from AI.

Alphabet is an impeccable value

There's a famous (and still relevant) quote by Warren Buffett that goes, "You pay a very high price in the stock market for a cheery consensus." Companies that are favorable to many investors tend to demand expensive valuations, whereas companies with an element of uncertainty can fetch a discount.

The simplest reason to buy Alphabet right now is if you believe the market's skepticism about the company's AI potential is unwarranted or overblown. In that case, investors can buy Alphabet at a steep discount to its peers. If Alphabet had a 30 P/E ratio instead of a sub-20 P/E, it would be worth well over $3 trillion. If it had Microsoft's P/E, it would be the most valuable company in the world.

In many ways, Alphabet deserves to trade at a discount to these other big tech names. But maybe only by a little bit -- not the drastic discrepancy we are seeing in the market today. All told, now is a great time for value investors interested in big tech to buy Alphabet stock.

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 $692,914!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $963,866!*

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*Stock Advisor returns as of June 30, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Chevron, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• Many top stocks aren't at bargain bin levels, but that doesn't mean investors should stop buying stocks altogether.

• Investors should focus less on timing the market and more on quality companies that could compound in value.

• Visa is a good example of a company whose valuation has increased, but could still be a sensible long-term buy.

The S&P 500 hit a new all-time high last Friday, surpassing its previous record from February. The index is now up 5% year to date -- a truly remarkable recovery given that the index was down over 17% year to date at its intraday low on April 7.

Here's why investors should continue buying stocks even though the major indexes are hitting new highs, but why investing in quality companies is especially important when valuations are elevated.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Get comfortable buying high

Buying a higher price goes against every instinct ingrained in us as consumers. Buyers benefit when clothing goes on sale, cars can be purchased below sticker price, or when housing prices or land values fall.

Most goods are stagnant assets. There's very little chance that a pair of jeans you buy today will be worth more a few years from now. And cars fall in value the second they are driven off the lot.

House prices and land values in growing urban areas have historically increased over time, but it's not because the land is magically better than it used to be. Rather, it's all about supply and demand.

Stocks are different. They represent partial ownership of a company. No matter how small, a slice of a big pie can be powerful if the company compounds in value. And yet, investors still often make the mistake of assuming a stock is a good buy because the price is lower, or that a stock is not a good buy or is worth selling because the price has gone up.

A good stock to buy near an all-time high

Visa (NYSE: V) is a good example of a well-known company that has continued to go up in value for all the right reasons. Its business model has remained essentially the same for decades. However, what has changed is a massive shift away from cash payments toward debit and credit cards and digital payments.

The company makes money when its cards are tapped, swiped, or entered digitally. It earns revenue based on the volume and frequency of transactions with its cards. And yet it doesn't bear the credit risk of its customers. Instead, it partners with financial institutions to bear that risk.

The larger and more secure Visa's network becomes, the more merchants may be willing to absorb Visa's fees so they don't hurt their sales. At the same time, consumers are incentivized to use their cards for as many purchases as possible, given the purchase protection offered by many financial institutions and credit card rewards programs.

It's a simple and relatively easy-to-understand business model that has made patient investors rich.

V data by YCharts

As you can see in the above chart, Visa has extremely high margins because it converts over half of its revenue into pure profit -- which has helped the stock price increase over 400% in the last decade. And because Visa's expenses are manageable, it can afford to pass along profits to shareholders by repurchasing stock and paying a growing dividend.

Just because Visa's stock price has compounded several-fold over the long term doesn't mean the stock is a bad buy now. Visa commands a premium valuation with a price-to-earnings (P/E) ratio of 35 compared to its 10-year median P/E of 33.2. But its forward P/E is 30.7, suggesting analysts believe that Visa has the qualities necessary to grow into that valuation over time.

Be selective

Visa is just one of many companies hovering within striking distance of all-time highs that could still be worth buying now. The stock isn't as good a deal as it was a couple of months ago, but it could still be a solid long-term investment.

When the broader market is undergoing a rapid sell-off, many phenomenal companies can fall to bargain-bin valuations. But when the major indexes are making new highs, it is even more important for investors to be selective and only put their hard-earned savings into companies they are highly committed to.

In sum, folks shouldn't stop investing just because stocks have gone up, but rather, understand the effect of valuation changes on their existing holdings and how price increases could impact the risk and potential reward of stocks on their watch lists.

Should you invest $1,000 in Visa right now?

Before you buy stock in Visa, 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 Visa 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 $697,627!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $939,655!*

Now, it’s worth noting Stock Advisor’s total average return is 1,045% — a market-crushing outperformance compared to 178% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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*Stock Advisor returns as of June 30, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.

On May 3, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) reported its first-quarter 2025 results and hosted its annual shareholder meeting in Omaha.

One of the standouts from the earnings release was Berkshire's position in cash, cash equivalents, and short-term Treasury bills, which increased by 84% over the past year from $188.99 billion as of March 31, 2024, to a whopping $347.68 billion as of March 31, 2025.

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Yet even with all that cash, Berkshire elected not to repurchase its own stock. It marked the third consecutive quarter Berkshire didn't buy back its stock -- which is out of the ordinary considering Berkshire had been on a 24-quarter streak of buybacks prior to the recent dry spell.

Here's what the treasure trove of cash and lack of buybacks signal, and if Berkshire is still an excellent value stock to buy now.

Building up cash

Buffett has a track record for making occasional blockbuster moves and then doing very little for multiple years. The strategy involves deploying significant capital toward top ideas rather than acting on impulse.

Most of Berkshire's largest stock holdings were acquired fairly quickly and then held over time. Similarly, the success of controlled assets like Berkshire's insurance businesses is a testament to developing these businesses over the long term, not constant wheeling and dealing.

If there were ever a time for Berkshire to build up its cash position, it would be now.

The S&P 500 is coming off back-to-back years of over 20% gains in 2023 and 2024 -- which Berkshire benefited from through its holdings in public securities and the growth of its controlled assets.

Furthermore, interest rates are relatively high, which provides an added incentive to hold risk-free assets like Treasury bills.

Data by YCharts.

Given these factors, it makes sense why Berkshire would build up its cash position, but that still doesn't explain why it wouldn't repurchase stock.

Berkshire's valuation is more expensive

The price-to-book ratio, also known as book value, is a better financial metric for valuing Berkshire than price-to-earnings or price-to-free cash flow because Berkshire operates as a conglomerate where net income can swing wildly from year to year based on changes to operating earnings and the value of its businesses.

Buffett has long used buybacks as a way to return capital to shareholders. Berkshire famously doesn't pay a dividend because Buffett feels that buybacks are a better use of capital than the one-time benefits of dividends, and he's been absolutely correct, given the long-term appreciation of Berkshire's stock price.

In Berkshire's quarterly earnings reports, there's a note that "Berkshire's common stock repurchase program permits Berkshire to repurchase its shares any time that Warren Buffett, Berkshire's Chairman of the Board and Chief Executive Officer, believes that the repurchase price is below Berkshire's intrinsic value, conservatively determined." And that "repurchases will not be made if they would reduce the value of Berkshire's consolidated cash, cash equivalents and U.S. Treasury bill holdings below $30 billion."

Since Berkshire's cash equivalents and U.S. Treasury bill holdings are over 11 times the $30 billion threshold, the holdup must be due to Berkshire's intrinsic value being above what Buffett would like.

Historically, Buffett has given the green light for buybacks when Berkshire's book value falls below 1.1, which was later upped to 1.2 times book value. But the guidelines have been flexible in recent years because Berkshire was buying back stock before the recent pause at higher price-to-book levels.

Berkshire's book value has soared because its market cap has grown at a faster rate than the value of its assets. Or, put another way, the stock price has been going up not because of massive gains in public equities Berkshire holds, but because investors are putting a premium price on its controlled assets and cash position.

Data by YCharts.

Berkshire is viewed as a safe stock amid tariff turmoil and market uncertainty because of its operational excellence and industry-leading performance across key economic sectors. Many of Berkshire's controlled assets, like the insurance businesses, are U.S.-focused, insulating them from geopolitical and trade tensions.

It's also worth mentioning that, during the annual meeting, Buffett discussed the 1% excise tax imposed on stock buybacks by publicly traded companies as another reason why buybacks aren't as attractive right now.

Buying Berkshire for the right reasons

The simplest reason to own Berkshire Hathaway stock over the long term is a belief in its capital allocation strategy and risk management. Berkshire stock isn't as cheap as it used to be, but just because Berkshire isn't buying back its stock doesn't mean individual investors should run for the exits. Berkshire is simply doing what it feels is best to maximize operating earnings and protect savings that investors have entrusted it to manage.

All told, Berkshire isn't a screaming buy, but it's a perfectly fine stock to buy and hold for long-term investors looking for a company they can count on no matter what the economy is doing.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, 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 Berkshire Hathaway 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 $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $717,471!*

Now, it’s worth noting Stock Advisor’s total average return is 909% — a market-crushing outperformance compared to 162% 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 May 5, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Meta Platforms (NASDAQ: META) rocketed 4.2% higher on Thursday in response to strong first-quarter earnings. The stock has erased almost all of its year-to-date losses in recent weeks, and, at the time of this writing, it is just a couple of percentage points off from being even on the year.

Here's why the company's latest results -- and management commentary on the earnings call -- reinforce its underlying investment thesis, and why Meta is a top growth stock to buy now.

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Family of apps continues to drive high-margin growth

Meta delivered 16% higher revenue -- but operating income soared 27%, thanks to just a 9% increase in costs and expenses. Meta finished the quarter with a sky-high operating margin of 41% -- meaning it converted 41 cents of every dollar in revenue into operating income.

Manageable spending also led to a 35% increase in net income and a 37% jump in diluted earnings per share (EPS).

This profitability is a testament to the company's strong business model. It's driving user engagement, which attracts advertisers. Meta's engagement metric -- family daily active people (DAP) -- refers to daily active people across its "family of apps" segment, which includes Instagram, WhatsApp, Facebook, Messenger, and Threads. DAP rose 6% year over year, which supported a 5% increase in ad impressions and a 10% increase in price per ad.

The following chart shows how diluted EPS has more than tripled from pre-pandemic levels, thanks to consistent revenue growth and margin expansion:

META Revenue (TTM) data by YCharts.

Results were excellent, but the company's outlook and confidence in its long-term investments were arguably even more encouraging.

Accelerating AI spending

Meta is guiding for $42.5 billion to $45.5 billion in Q2 2025 revenue. At the midpoint of $44 billion, that would be a 12.6% jump from Q2 2024 -- which was a difficult comparable, considering Q2 2024 revenue was up 22% year over year.

The company is lowering its full-year guidance for total expenses from a range of $114 billion to $119 billion to a new range of $113 billion to $118 billion. But it's raising its full-year 2025 capital expenditures (capex) expectations to between $64 billion and $72 billion -- up from its prior outlook of $60 billion to $65 billion.

Most of capex is going toward generative artificial intelligence (AI) and core business needs. Meta is investing in infrastructure improvements (like building data centers) to scale up its AI services, while maintaining control and flexibility of its operations so it can react to changing customer preferences. Management said that it's generating strong returns from its AI initiatives by increasing the efficiency of its workloads. For example, AI-driven feed and video recommendations delivered a 7% increase in time spent on Facebook and a 6% increase in time spent on Instagram.

AI is favorably impacting user engagement and helping advertisers customize campaigns based on their objectives and budgets. On April 29, the day before Meta reported earnings, it released the Meta AI app, which leverages the latest version of its large language model -- Llama 4. The Meta AI app is a stand-alone tool, which is different from embedded AI functionality in Instagram, Facebook, and WhatsApp. The app can solve problems, answer questions, provide deep dives on topics, and more -- which makes it a competitor to ChatGPT and Alphabet-owned Google Search.

Meta's sustained growth and higher capex, despite difficult comps and an uncertain macro environment, speak volumes about its business model's effectiveness and its belief in long-term investments in AI and other research and development.

The company continues to pour money into its Reality Labs division, which is building devices and experiences in virtual reality, augmented reality, the metaverse, and other efforts. And while the core family of apps segment continues to deliver high-margin growth, Reality Labs is a money pit -- posting an operating loss of $4.2 billion in the quarter. In 2024, Reality Labs lost a staggering $17.73 billion. As high as that figure is, Meta can afford it because of the impeccable performance of its family of apps.

Reality Labs has shown some bright spots. For example, Ray-Ban Meta AI glasses had four times as many monthly active users as a year ago. Despite the upside potential, Reality Labs is simply too unproven to factor into Meta's investment thesis.

Returning capital to shareholders

Even with its aggressive capex spending and ongoing support of the unprofitable Reality Labs division, Meta can still afford to return a significant amount of capital to shareholders. In its latest quarter, it spent $13.4 billion on buybacks and $1.33 billion on dividends. (Meta began paying dividends last year.)

If it were to sustain the same pace of buybacks and dividends for the whole year, it would return roughly 4% of its market cap to shareholders. Put another way, if Meta only paid dividends and didn't repurchase stock, it would have a dividend yield of 4% -- illustrating just how massive its capital return program is.

Over time, buybacks have helped the company grow earnings far faster than net income. Despite its high stock-based compensation, Meta has achieved one of the most aggressive share-count reductions of the megacap tech-focused companies. In just five years, Meta has reduced its share count by 11.4%, which is slightly more than Alphabet's 10.9% reduction and a bit shy of Apple's 12.8%.

Steady buybacks and earnings growth have helped keep the stock's valuation reasonable despite its strong share price. Meta's stock price has soared 152% in the last five years, but diluted EPS has grown even faster, so the price-to-earnings (P/E) ratio has actually fallen. In fact, Meta sports a P/E of just 22.4 -- which is dirt cheap for an industry-leading company with high margins.

What's even more impressive is that earnings would be even higher if the company weren't losing billions each quarter on Reality Labs. So from that perspective, Meta is beyond cheap.

Meta Platforms is a high-conviction buy

Meta checks all the boxes of a top growth stock to buy now.

The core business continues to fire on all cylinders and generate plenty of cash flow to use for higher capex. Meta has done a good job managing operating expenses to support its long-term investments and help cushion the blow from Reality Labs losses.

The company continues to repurchase stock at a breakneck pace, keeping a tight lid on its valuation. Its ultrastrong balance sheet allows it to navigate an economic slowdown or pounce on acquisition opportunities.

Add all that up, and Meta Platforms is one of the best buys today: It can play a foundational role in a diversified portfolio for growth and value investors alike.

Should you invest $1,000 in Meta Platforms right now?

Before you buy stock in Meta Platforms, 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 Meta Platforms 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 $623,685!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $701,781!*

Now, it’s worth noting Stock Advisor’s total average return is 906% — a market-crushing outperformance compared to 164% 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 May 5, 2025

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. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Meta Platforms. The Motley Fool has a disclosure policy.

Investors have been on such a turbulent roller coaster that it's easy to forget that the S&P 500 (SNPINDEX: ^GSPC) was up slightly through the first two months of the year.

With April coming to a close and the major indexes firmly in the red, investors may be wondering how long volatility will last, and if now is a good time to buy stocks or run for the exits.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Here are five lessons I've learned from major sell-offs over the last seven years, and how these lessons can help you navigate market uncertainty.

1. Each sell-off is different

No one knows when the market will go down or why. But we do know that the circumstances that lead to a sell-off are never truly the same.

Through the first three quarters of 2018, the S&P 500 was pretty much flat. But in the fourth quarter, it began selling off due to U.S. President Donald Trump's trade war with China in his first term. The sell-off intensified, and the index was down around 20% year to date on Christmas Eve before staging an epic recovery, ending the year down just 6.2%.

The index then shot up a staggering 7.9% in January 2019 to make up for all the Q4 losses. If you hadn't checked your portfolio for four months, it would've looked like nothing had happened.

The March 2020 pandemic-induced sell-off was a true flash crash -- amplified by the instantaneous spread of news, sophistication of modern markets, and fear. As mandates took effect and vaccines progressed, sentiment shifted from panic to viewing the pandemic as a temporary phenomenon.

After rallying a staggering 47.5% between the start of 2020 and the end of 2021, the S&P 500 fell 19.4% in 2022. The sell-off was driven by valuation concerns, rampant inflation, and supply chain challenges. 2022 was a fairly reasonable sell-off in hindsight. Cooling inflation and resilient earnings growth set the stage for another epic two-year rally in 2023 and 2024, in which the S&P 500 gained 53.2%, driven by excitement for growth trends like artificial intelligence.

As in 2018, the 2025 sell-off has been a rapid pullback in response to geopolitical tensions and tariffs. Only this time, the Federal Reserve is in a completely different position. The Federal Reserve was raising interest rates into the fall of 2018, which fueled the subsequent sell-off. Then, Fed Chair Jerome Powell reversed course and cut rates in the summer of 2019, marking the Fed's first rate reduction since 2008.

Still concerned about inflation, the Fed is hesitant to cut rates at this time, despite pressure from Trump and threats that Powell should be fired. The composition of a sell-off is always different, so it's best to view our present-day pullback with context in mind. History can provide some insight, but it's a mistake to assume a swift or straightforward road to recovery.

2. You won't know it's the bottom till it's over

It's easy to analyze the causes of past stock market sell-offs and identify their starting and ending points. But when you're living through one, as we are now, it's impossible to know when the bottom will arrive, if it has already happened, or if there's a long way to go.

It felt like the damage from the fall 2018 and March 2020 sell-offs was so intense that it could take years to recover, when in fact it ended up being a matter of months. However, the 2022 bear market lasted nearly a year.

We're still in a period of high uncertainty in the present-day sell-off. There could be lasting economic effects from tariffs and a recession, a resolution could be reached tomorrow, or anything in between could happen. We simply don't know how long it will last, and admitting that we don't know is an important step in avoiding speculation.

3. Top companies will go on sale for reasons that have nothing to do with the underlying investment thesis

One common thread among most sell-offs, regardless of their cause, is that investors tend to overweight near-term risks. When investors are pessimistic, they may be less willing to pay for potential earnings growth or gravitate toward stable companies like blue chip dividend stocks. This can lead to drastic sell-offs in excellent companies, even though the investment thesis hasn't changed.

One of my favorite examples from recent years is Meta Platforms (NASDAQ: META). It's hard to imagine, but in 2022, Meta Platforms fell below $90 a share. It was a perfect storm for the company, as TikTok was gaining popularity and challenging Instagram. Meta was pouring money into the metaverse and other virtual reality endeavors at a time when investors had little patience for spending on projects that didn't contribute to the bottom line. To top it all off, there was a widespread sell-off in growth stocks.

Meta ended 2022 down a staggering 64%. During the worst of the sell-off in early November, Meta Platforms' price-to-earnings ratio fell below 9. Meta could have done a better job managing expenses and addressing investor concerns. But the sell-off's extent was magnitudes beyond what was reasonable, especially since Instagram Reels had been out since August 2020 and was gaining popularity as an alternative to TikTok.

The lesson is that sell-offs can present incredible opportunities to scoop up shares of excellent companies when they're out of favor. The trick is to stick to high-conviction companies you understand in case the sell-off lasts longer than expected or stock prices continue to decline.

4. Invest with a long-term time horizon

Buying shares in top companies doesn't work if it's for the wrong reasons or time frame. Trying to time the market and play a quick bounce by speculating on companies you don't understand is a great way to lose your shirt.

Maintaining a long-term time horizon alleviates the pressure caused by volatility and fluctuations in asset prices. This is especially important because emotions can flare up during sell-offs.

Again, it's easy to look at past sell-offs and the reward of subsequent market highs as obvious times to buy in hindsight. However, in real time, sell-offs can be emotionally taxing. No one likes losing money. Seeing months or even years of gains evaporate in a flash can strain even the most seasoned investors.

By focusing on the big picture, you can let investment theses be your guide, rather than allowing stock prices to dictate true value.

5. Don't take on more risk than you're comfortable with

Perhaps the most important lesson of all during sell-offs is risk management. The stock market is merely a tool for reaching your financial goals. Letting the stock market work for you can be a path to wealth and financial success. But letting the stock market bully you around can lead to financial mistakes.

One of the easiest ways to feel adrift is to get caught in a riptide of market volatility. If you're taking on more risk than you're comfortable with, either through allocation or by using margin, you can amplify gains on the upside but also magnify losses on the downside.

It's best to be true to yourself and invest in a way that complements your personal preferences and financial goals.

Benefiting from market sell-offs

All the lessons I've learned over the last seven years center around one common theme: pressure. The more you can limit pressure and anxiety during a sell-off, the better equipped you'll be to make smart investment decisions.

The good news is that there are straightforward ways to reduce pressure. They include properly managing risk, focusing on the long term, investing in businesses with strong fundamentals, accepting that things could worsen before they improve, and being prepared for a prolonged downturn, even if it doesn't happen.

If you can reduce pressure and control your emotions, stock market sell-offs can be tremendous, sometimes life-changing buying opportunities.

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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. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.

The "Magnificent Seven" -- Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla -- took the market by storm in 2023 and 2024 by contributing a sizable portion of gains in major indexes like the S&P 500 and Nasdaq Composite.

But that momentum has ground to a halt this year. As of the time of this writing, all seven stocks are underperforming the S&P 500 in 2025. The best of the bunch, Microsoft, is down 8.1% year-to-date, while Tesla has tumbled over 35% even when factoring in its post-earnings rebound on Wednesday and Thursday.

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Here's why investors looking for low-cost exchange-traded funds (ETFs) that don't include the Magnificent Seven may want to take a closer look at the Vanguard High Dividend Yield ETF (NYSEMKT: VYM).

In defense of the Magnificent Seven

Before diving into the attractive qualities of the Vanguard High Dividend Yield ETF, it's worth mentioning that it's a mistake to bail on the Magnificent Seven just because their stock prices are lower this year.

The group boasts numerous competitive advantages and robust balance sheets. And the sell-off has only made their valuations more attractive for long-term investors. Risk-tolerant investors may want to consider top names in the Magnificent Seven, such as Meta Platforms, which has strong free cash flow, an inexpensive valuation, and a clear runway for future growth.

However, there are also compelling reasons not to buy Magnificent Seven stocks. The simplest is that you already have your desired exposure to the group, either by directly investing in individual names or through Magnificent Seven-heavy ETFs.

The Magnificent Seven are so large that they comprise a massive amount of the major indexes. The Vanguard S&P 500 ETF has 29.9% in the Magnificent Seven, and the Invesco QQQ Trust -- which mirrors the performance of the Nasdaq-100 -- has a staggering 40.5% in the group.

Investors seeking to deploy new capital in a diversified ETF while avoiding the Magnificent Seven may want to consider income and value funds. One fund that is especially appealing right now is the Vanguard High Dividend Yield ETF.

Industry leadership across value-focused sectors

Many of the top holdings in the Vanguard High Dividend Yield ETF are industry-leading companies from non-tech-focused sectors -- like JPMorgan Chase and Bank of America for financials; ExxonMobil and Chevron for energy; UnitedHealth Group, Johnson & Johnson, and AbbVie for healthcare; and Procter & Gamble, Coca-Cola, and Walmart for consumer staples. The tech stocks the ETF holds -- like Broadcom, Cisco Systems, and International Business Machines -- pay growing dividends.

This ETF has an expense ratio of just 0.06%, which is slightly higher than the Vanguard S&P 500 ETF's 0.03%. However, the subtle difference won't significantly impact most investors, as it amounts to only 30 cents more in annual fees per $1,000 invested.

The Vanguard High Dividend Yield ETF targets companies with strong track records of dividend growth. The lack of exposure to the Magnificent Seven makes the fund much more balanced across sectors than the S&P 500.

Sector	Vanguard High Dividend Yield ETF	Vanguard S&P 500 ETF
Financials	20.4%	14.6%
Healthcare	14.3%	11.2%
Technology and Communications	13.3%	38.9%
Industrials	13.2%	8.5%
Consumer Staples	10.6%	6%
Consumer Discretionary	10.2%	10.3%
Energy	9.4%	3.7%
Utilities	6.6%	2.5%
Basic Materials	2%	2%
Real Estate	0%	2.3%

Data source: Vanguard.

By overweighting sectors such as financials, healthcare, industrials, consumer staples, energy, and utilities relative to the S&P 500, the Vanguard High Dividend Yield ETF achieves a 2.9% dividend yield, roughly double the 1.4% yield of the Vanguard S&P 500 ETF. The High Dividend Yield ETF fund also has a lower price-to-earnings ratio at 18.1 compared to 23.9 for the S&P 500 ETF.

A plug-and-play option for all kinds of investors

The Vanguard High Dividend Yield ETF is a straightforward and effective way to gain exposure to several top dividend-paying value stocks without incurring high fees. The fund could be a good fit for risk-averse investors, income investors, or even balanced investors who don't want to increase their exposure to companies they already own.

During times of heightened market volatility, it can be useful to have a list of stocks and ETFs to turn to when you're trying to filter out noise and make a calculated decision not based on emotion. The Vanguard High Dividend Yield ETF certainly checks the "value" and "income" boxes, making it a useful tool for folks targeting those objectives.

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Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends AbbVie, Alphabet, Amazon, Apple, Bank of America, Chevron, Cisco Systems, International Business Machines, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom, Johnson & Johnson, and UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The price of gold is hitting new all-time highs -- surpassing $3,500 per ounce. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) is in a correction. Some investors may be wondering if it is better at the moment to buy the dip in the S&P 500 or ride the gold wave higher.

Below I'll discuss why gold is doing so well, different ways to invest in gold -- including through an exchange-traded fund (ETF) -- and if gold is a better buy than an S&P 500 index fund.

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Gold is piling on the gains

Gold prices are up over 30% year to date at the time of this writing, compared to a 12.3% sell-off in the S&P 500. Its price performance also slightly beat the S&P 500 in 2024.

Gold has been so hot that it's up more than the S&P 500 over the last three-year, five-year, and 10-year periods -- although the S&P 500 is beating it over the last five-year and 10-year periods when you account for dividends reinvested.

Still, gold's torrid run-up may come as a surprise, especially given the strong gains in the S&P 500 led by megacap growth stocks. It wasn't long ago that investors questioned when the first U.S. company would surpass $1 trillion in market cap. Apple, Microsoft, and Nvidia all closed out 2024 with market caps over $3 trillion.

Gold has made most of its gains over the S&P 500 during the last three years (there were two major sell-offs in the S&P 500 -- in 2022 and now in 2025) thanks to its steady rise in that time. Even with dividends included, the Vanguard S&P 500 ETF (NYSEMKT: VOO) is massively underperforming the SPDR Gold Shares ETF (NYSEMKT: GLD) fund over the last three years.

Data by YCharts.

The S&P 500 generally is driven higher by earnings and investor sentiment, and higher earnings justify higher stock prices. When sentiment is positive, investors may be willing to pay more for stocks, based on future earnings expectations.

Gold is based on supply and demand. It's a commodity, not a company.

Lower interest rates can reduce borrowing costs and drive gold prices higher. However, geopolitical uncertainty is an even greater catalyst for higher gold prices.

Tariff tensions, the threat of trade wars, and President Donald Trump's attacks on Federal Reserve Chairman Jerome Powell can weaken confidence in U.S. markets and potentially jeopardize their credibility. As a result, fearful investors around the world may turn away from U.S. stocks toward gold.

Another driving factor is the People's Bank of China -- the largest official sector buyer of gold in 2023 and 2024. Reports indicate that the central bank boosted its gold reserves for the fifth consecutive month in March.

In sum, there are valid near-term factors driving gold prices higher. However, that doesn't mean investors should dump stocks in favor of gold.

Buying gold versus equity ETFs

Buying gold through jewelry, coins, or bullion comes with storage and security risks. The most straightforward and liquid way to buy and sell gold is through an ETF, such as the SPDR Gold Shares.

The fund uses a custodian that holds physical gold on its behalf, with the fund passing along a 0.4% expense ratio as a fee for its services. By comparison, the Vanguard S&P 500 ETF charges a mere 0.03% expense ratio.

The better buy now depends on your investment objectives and existing holdings. If you're looking to add a new asset class to your portfolio that can perform well, even if geopolitical tensions persist, then gold could be worth a closer look. However, if you're looking to invest in a variety of companies under the simplicity of one tradable ticker, then an S&P 500 index fund may be a better fit.

Another factor worth considering is what makes up the S&P 500. A whopping 35% of the Vanguard S&P 500 ETF is invested in just 10 companies -- Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Berkshire Hathaway, Broadcom, Tesla, and JPMorgan Chase. If you already own sizable positions in these companies, then buying an S&P 500 index fund may not achieve the level of diversification you're looking for. There are plenty of low-cost ETFs out there that don't include these megacap names or are less top-heavy.

However, if you're looking for broad-based exposure to the market, then an S&P 500 index fund is a good starting point.

Integrating gold into a diversified portfolio

Gold has been on a tear in recent years, which has bridged the gap between gold's gains and the S&P 500 over the last decade. However, for most investors, it's probably best that gold serve more as a role player in a diversified portfolio, rather than the focal point.

Gold could fall or underperform the S&P 500 if the supply/demand imbalance changes. It's also more difficult to analyze because it isn't based on business fundamentals.

Another factor worth considering is that there aren't dividends on gold ETFs, whereas S&P 500 index funds and plenty of other equity-based ETFs have dividends, which provide passive income no matter what the market is doing.

Ultimately, the amount of gold to include in a portfolio depends on your risk tolerance and what you already own. Investors with ultra-long-term time horizons may be better off keeping gold exposure to a minimum, especially given the long-term opportunity cost of investing in gold instead of the stock market. However, the near-term catalysts for gold are undeniable, so it makes sense that gold is crushing the S&P 500 year to date.

Should you invest $1,000 in SPDR Gold Trust right now?

Before you buy stock in SPDR Gold Trust, 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 SPDR Gold Trust 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 $591,533!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $652,319!*

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*Stock Advisor returns as of April 21, 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. 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. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.