Which stocks to buy before they explode is the million-dollar question. When Tesla (NASDAQ:TSLA) became the next trillion-dollar company on Oct. 26 when its share price got a boost from Hertz Global Holdings (OTCMKTS:HTZZ) announcement it would buy 100,000 Model 3’s from the electric vehicle maker.
After the announcement by Hertz, Tesla CEO Elon Musk suggested that a contract hadn’t been signed yet, sending TSLA shares lower. However, despite throwing cold water on the news, the company’s market capitalization sits well above $1 trillion as I write this.
The question on every investor’s mind now is who will be the next company to go over the $1-trillion mark.
The most apparent name would be Meta Platforms (NASDAQ:FB), the parent of Facebook. It sits at a market cap of $934 billion. A 10% increase in its share price would put it over the top.
- Nvidia (NASDAQ:NVDA)
- Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B)
- Taiwan Semiconductor Manufacturing (NYSE:TSM)
- JPMorgan Chase & Co. (NYSE:JPM)
- Alibaba (NYSE:BABA)
- Visa (NYSE:V)
- Johnson & Johnson (NYSE:JNJ)
I’m going with the following seven stocks to buy that might get the job done in 2022 or 2023 at the latest.
Next Trillion-Dollar Stocks to Buy: Nvidia (NVDA)
I have to admit that my selection of companies isn’t very original. They are the seven largest U.S.-listed stocks to buy yet to reach $1 trillion. However, I wanted to make sure that each of the names had a shot at getting there by the end of 2023.
Nvidia is firing on all cylinders right now.
In the six months ended Aug. 1, the company generated free cash flow (FCF) of $4.04 billion, 92% higher than a year earlier. On a trailing 12-month (TTM) basis, Nvidia’s FCF is $6.67 billion. Based on its market cap of $745.03 billion, it has an FCF yield of less than 1%.
That’s what happens when your share price appreciates by nearly 135% year-to-date. On the bright side, it has an FCF margin above 30%. If it continues to grow its quarterly revenue by 68% year-over-year, as it did in Q2 2022, I don’t think it will have any trouble joining the club in 2022.
To get there, it needs to add $255 billion in market cap. With 2.53 billion shares outstanding, that translates to a $101 per share increase, or 34%.
While I believe that Nvidia CEO and founder Jensen Huang is one of the best executives in America, the odds of getting to $1 trillion in 2022 are going to be tough.
Berkshire Hathaway (BRK.A, BRK.B)
Warren Buffett’s company currently has a market cap of $654 million. So, Berkshire needs to add $346 billion in value to gain entry into the club. That’s a little more than a 50% increase.
I don’t want to rain on the company’s parade. However, since 1965, BRK has appreciated by 34% or more in 16 years, the last being in 1998. The closest it’s come since was a 32.7% gain in 2013.
Over the past five years, Berkshire’s increased its market value by an average of 12.3% per year. It needs to double that return to hit $1 trillion by the end of 2023.
That’s not to say that Buffett doesn’t have it in him to pull off the unthinkable.
Bloomberg recently reported that Berkshire invested $300 million in Paytm in 2018, an India-based payments firm. It plans to go public at a valuation of $20 billion, which would value its investment at $510 million, a 70% return over three years.
Plus, popular IPOs, especially fintechs, tend to sprint out of the gate. That could easily double the holding company’s return when it’s able to cash out.
That’s an impressive return, but if Berkshire makes this prestigious group, it will need to deliver something much more significant to move the needle. I think at this point, only two things will do the trick.
Either Buffett bags the elephant, or he does as I suggested in 2017 and spins off some of the company’s cash into smaller, more agile businesses that can acquire smaller growth companies that can move the needle faster.
I don’t think he will, but you never know. No one thought Apple would be Berkshire’s largest holding, but here we are.
Next Trillion-Dollar Stocks to Buy: Taiwan Semiconductor Manufacturing (TSM)
The Taiwan semiconductor giant hasn’t had the kind of year in the markets Nvidia has had. It’s up 5.5% YTD, less than 1/20th Nvidia’s performance over the same period.
Of course, TSM’s in a different business than Nvidia. It manufactures the actual chips. Nvidia merely designs them, outsourcing the production to a fabrication plant run by companies like Taiwan Semiconductor.
“Remember that Nvidia and Taiwan Semiconductor are two totally different business models,” Gina Sanchez, chief market strategist at Lido Advisors, told CNBC’s ‘Trading Nation’ on Oct. 26. “Taiwan Semiconductor is a pure play on the fab. Nvidia is a fabless play on innovation. … This investment by Facebook will benefit Nvidia because Nvidia is the fastest chip out there.”
However, what investors get with TSM is a company with almost $9 billion in TTM FCF and an FCF yield of 1.5%, nearly double Nvidia’s FCF yield. Further, it trades at 11.7x sales compared to Nvidia’s 54x forward earnings.
If investors are looking for a value play on the semiconductor market, TSM is it.
JPMorgan Chase & Co. (JPM)
To get to $1 trillion, JPM will have to double its market cap. Up 43% YTD and 52% over the past 52 weeks, CEO Jamie Dimon will have to pull a rabbit out of his hat to reach the trillion-dollar mark by the end of 2022.
However, if interest rates move higher, it’s entirely possible it could achieve the task by the end of 2023.
The bank reported Q3 2021 results in mid-October. They were reasonably healthy with a 24% increase in profits to $11.7 billion, or $3.74 a share, 71 cents higher than the analyst expectation. Revenue was up 2% to $30.4 billion. That was $600 million higher than the consensus estimate.
Other tidbits include a 5% increase in average loans and a 19% increase in average deposits during the quarter. In addition, with the economy improving, it released $2.1 billion in credit reserves, which is why the profits were so high in the quarter.
For all of 2021, it expects net interest income — the difference between what it generates in revenue from interest-bearing assets and what it pays out on those assets — to be $52.5 billion.
As interest rates rise, JPMorgan will make more from its customers, not less, moving all of the numbers I’ve mentioned higher.
Will it be enough to double its stock by the end of 2023? Probably not. That said, its stock has delivered a total return of 71.6% over the past year. So if it does it in 2022, it will come close to $1 trillion.
Next Trillion-Dollar Stocks to Buy: Alibaba (BABA)
There are about eight weeks left in 2021. To date, Alibaba’s lost 29% of its value. That means it started the year with a market cap of $637 billion. If it went the other way and gained 29%, it would be within shouting distance of $1 trillion.
Alas, that’s not what happened. Instead, Alibaba’s been hammered from every direction. It is not an easy time to be an Alibaba shareholder. Harris Douglas Asset Manager Paul Harris recently told the Cantech Letter that investors shouldn’t be surprised for its share price to remain stuck in neutral.
“‘I don’t own Alibaba but I will say that it’s an interesting company. I think the difficult part of it is that China is really cracking down on a lot of these big tech companies and so that has hurt many of the Chinese tech companies,’ said Harris, speaking on BNN Bloomberg on Tuesday,” the Cantech Letter reported.
“‘The other issue is a lot of pressure [from] the United States for them to move to GAAP reporting,’ Harris said.”
However, it’s hard to ignore that the company’s active consumer base is almost 1.2 billion people. In Q1 2021, it generated an FCF of $3.2 billion. Over the past 12 months, its free cash flow was $26.9 billion.
Based on its market cap of $452 billion, it has an FCF yield of 6.0%. That’s not value territory, in my opinion, but it’s close. So should the Chinese government cut it some slack, I could see a big move in 2022.
That said, the odds are slim that it will get to $1 trillion in 2022.
The good news from Visa’s Q4 2021 report issued on Oct. 26 was that its revenues of $6.6 billion were $100 million higher than analyst estimates while earnings per share were $1.62, six cents higher than the consensus, and 50 cents higher than Q4 2020.
The bad news is that the company expects revenues to increase in the mid-teens in 2022, below what analysts expect for the coming year. Instead, they believe revenues will grow by 18.3%.
“Visa’s commentary ‘raised debates on whether the guide was conservative or other issues are pressuring Visa’s business’ such as pricing and incentives, Wolfe Research analyst Darrin Peller wrote.
He sees the outlook as conservative on macro assumptions but noted that the implied increases in incentives, excluding travel, are largely in-line with historic trends, MarketWatch reported.
One area where the company expects to see growth is within payroll and the gig economy. It is seeing a serious increase in the use of earned-wage-access technology to get workers paid faster.
As the company’s fintech participation increases, investors can expect Visa’s revenue and profits to accelerate. That will undoubtedly have a positive effect on Visa’s share price.
At a market cap of $443 billion, Visa is a longshot to hit $1 trillion by the end of 2023.
Johnson & Johnson (JNJ)
I wasn’t going to write about the next trillion-dollar company without including a healthcare stock. JNJ has the highest market cap in the healthcare sector by a slight margin over UnitedHealth Group (NYSE:UNH), the largest private provider of health insurance in the U.S.
Over the past 10 years, Johnson & Johnson’s annualized total return is 27%. It currently has a market cap of $435 billion. To get to $1 trillion by the end of 2023, it needs to generate an annual return of 52%.
I could see it reaching that return rate in one of the two next years but not both. Therefore, I would say it’s more realistic for it to hit $1 trillion in late 2024 or the first half of 2025.
One thing that won’t help the company get there is the Mayo Clinic study of almost 9,000 patients between February and July of this year. It found that the J&J Covid-19 vaccine was 73.6% effective. However, because only 60 out of 8,999 people in the study got Covid-19, the study could not determine the vaccine’s effectiveness in preventing death.
“‘What is becoming more clear with time is that the single-dose regimen of the [Johnsons & Johnson Covid-19] vaccine seems to be inferior to the mRNA vaccines in terms of [vaccine effectiveness],’ Sajadi wrote, comparing the J&J vaccine to a different type of Covid-19 vaccine that is made by Pfizer/BioNTech and Moderna,” CNN Business reported on Nov. 2.
However, the company only expects to generate $2.5 billion from the vaccine in 2021. That’s less than 3% of its TTM revenue of $91.5 billion.
So, I don’t think shareholders should worry too much about the lack of revenue from Covid-19 holding back its stock. It’s got plenty of levers to pull to get to $1 trillion in time. It’s certainly one of the stocks to buy that has a chance.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.