S&P 8,000 Is Coming? I Ranked 6 Stocks From Best to Worst

The market just did something incredibly important. Some of the biggest stocks in the world were suddenly sitting well below their highs. We had Google that was down double digits, Microsoft down double digits, and semiconductors while some of those were crushed with plenty of former market leaders looking broken. And then almost overnight, everything changed. Technology bounced. Semiconductors ripped higher. Microsoft jumped more than 7% just in August. And the exact stocks investors were terrified of well they suddenly became the stocks that everyone wanted again. In fact, just look at technology. It's gained more than 11% in just five trading days. A move that historically sits at the extreme end of what we normally see. So, this is really where things get difficult because being bullish on the market and being willing to buy every stock after an 11% 5-day rally, well, they're two completely different things. We in fact had Amazon, which recently crossed the $3 trillion mark. AI spending, well, it's accelerating, earning estimates. They're moving higher. And some strategists now think the S&P 500 could reach 8,000 far sooner than investors expect. So today, I've taken six stocks, including Google, Amazon, and four companies that don't normally get anywhere near the same attention. And I'm asking one question. After this bounce, where would I actually put fresh money? And stay with me because one of these stocks is still more than 30% below its high and trades around 13 times next year's expected earnings. >> You say we could go 7,900 to 8,000 this month alone. So, this momentum is going to continue. >> Yeah, I think uh the a deleveraging that happened a couple of weeks ago put a lot of cash on the sidelines, got sentiment quite bearish, and then on top of people getting very skeptical of the Fed got markets to derisk. And now I think as earnings have been good. And I think there's a rethink of how inflation might be cooler than expected. And of course AI is still strong, there's going to be a chase. I think that chase takes us towards 7,900 8,000. And that word chase is really what today's episode is about. Because this isn't just investors suddenly feeling better. There is increasingly a fundamental argument underneath the rally. But when the chase has already started this violently, price matters more, not less. And we have Josh Brown explain why investors suddenly have so much confidence. >> Let's take out Google and Amazon earnings because we know they wrote up their stakes in Anthropic and other startups and that's not obviously repeatable or something that we want to get too excited about. Even if you pull those out, the S&P 500's earnings growth is still 28.8%. Um, for next quarter, the analysts are already increasing estimates. Normally, analysts reduce estimates during the quarter. They lower the hurdle, make it easier for their coverage universe to jump over. They're not doing that now. For Q2 and for Q3, analysts spent the quarter revising estimates upward. They have to. They're listening to management. In the last 80 quarters, that's 20 years worth of data. The average change in estimates for the first month of the quarter has [snorts] been negative 1.9%. That's the average. Right now, it's up 2.1% in this quarter for next quarter's numbers. This is these are unheard of times. >> That is extremely unusual. Wall Street normally cuts the bar during a quarter. This time the bar itself is moving higher and it helps explain why investors were so willing to buy the recent weakness. But it doesn't mean every stock is equally attractive. >> Having said that, all three are winners. The only difference right now is valuation. Amazon's the most expensive, Google the second, and Microsoft the least expensive. All three are winning. And valuation is exactly where things start getting messy. Google can look incredibly cheap using one year's earnings. And Amazon, well, that can look surprisingly cheap as well. But both have earnings distortions and enormous AI investment cycles that makes those headline multiples less useful than they first appear. And bear in mind, there's one more risk that we need to consider. The spending boom itself may not continue in a perfectly straight line. There's a lot of companies, like I just mentioned, the four major hyperscalers that have preunded a lot of their purchases for next year. This year, they've pulled it all into this year because they'd rather pay today's elevated price versus next year's elevated price. They'll take the known known versus the unknown unknown of next year's prices. And I think we have to consider how much of the additional spending at like a caterpillar, I'll use them again, or Corning for example, those kinds of companies that are third order effects, how much of that spending that has reached them already is going to slow down because the companies accelerated this year and they won't do it again next year. >> So that's our setup. Strong earnings, strong AI demand, a market chasing higher, but potentially a lot of optimism already reflected in the price. So let's begin with Alphabet because at first glance this looks like perhaps the easiest decision on the list is trading around $358 is up around 14% this year although we can see it is below its recent peak of around $49. Wall Street while they continue to give this one a strong buy 4.6 out of five and they estimate around 20% upside over the next year price target $428 at the higher end $515. And bear in mind the size of this company. Well, the underlining growth is ridiculous. Revenue is growing around 20% year-over-year. Forward revenue expected a very similar amount. EBIT D was up 24% expected to slightly accelerate to 25. And forward earnings per share expected to grow 22.5%. And search, well, it hasn't disappeared. Google search and other advertising revenue on this chart is climbed around 243 billion while YouTube advertising that's another 43 billion. AI has not killed Google's advertising machine. And then at the exact same time, Google Cloud has become a genuine second growth engine. We can see here cloud revenue reached around 78 billion after compounding at an extraordinary rate over the last several years. We're talking 39%. And this is perhaps even more important. Google's cloud backlog has risen to around 514 billion, giving investors an enormous amount of contracted future demand. And then on top of that, we've got TPUs. If Google's custom silicon increasingly becomes an external product rather than merely an internal cost advantage, it gives Alphabet another monetization route from this AI buildout. Well, we also have to talk about the problem. Google's reported earnings and its current cash generation. Well, they're moving in dramatically different directions. We can see the latest bar. It shows enormous reported net income while free cash flows collapse because Alphabet is spending an extraordinary amount on the infrastructure required to support the growth. So, I don't want to value Google simply off one earnings number. And this illustrates why the 2026 consensus number, well, makes Google look like a 17 times earning stock, but the 2027 estimate, well, that pushes the multiple back above 24 times because the current year contains earnings that honestly aren't necessarily repeatable. And using the historical valuation screen from Simply Safe Dividends, Alphabet also trades above its 5-year average multiple. So depending on which earnings definition you use, you can make Google appear either unusually cheap or unusually expensive. Neither is good enough. And sticking with simply safe dividends, well, we can see here it is above the upper end of the blues tunnel, which highlights the intrinsic fair price, indicating potentially an overvaluation signal. Just look at the last 10 years of data. Google is more often than not one of those that trades in every single region. It goes through years trading at a premium. Years trading in fact at a discount. Now we see it back in the premium region. And this is why I prefer looking at cash flow assumptions. My medium case reduces a value of around $344. Compared to today's price around $357. If we look at the inputs that we've used, well at 12% growth, we get 324. 14% 344. And even at 16% around 364. It isn't really a huge margin of safety. And Wall Street, as we mentioned earlier, they're more optimistic, $428, but my own model is telling me something quite different. Alphabet is probably around fair value rather than obviously cheap. Now, could Google outperform those assumptions? Absolutely. Cloud backlog, search, YouTube, and TV monetization gives it several different ways to beat expectations. And that's why I'd absolutely continue owning Alphabet. But owning a stock and aggressively chasing it after a rally, they're not the same decision. At around $358, Google is a hold or a very selective accumulate for me. Not one of today's strongest fresh buys. If it fell to around the low30s, then I become substantially more interested. And that takes us to a company with almost none of Google's hype, but one of the best business models in the entire market, and that's Moody's down around 7% this year, trading near $473. Is not going to dominate CNBC headlines, but it's economics are exceptional. We can also note it's trading around the midpoint of the 52- week range with a respectable buy from Wall Street, 4.25 out of five. And you can see that Moody's ratings revenue reached 1.248 248 billion in the latest quarter. Corporate finance alone contributed to 651 million. And look at that recovery from 2022 and 2023 as debt issuance in capital market activity recovered. Moody's rating franchise came roaring back with it. And you can see Wall Street expecting around 80 19% upside over the next year. $560 price target. The ranges somewhere between $500 to $600. And revenues currently growing around 12% year-over-year. EBIT we can see that sitting around 21% and diluted earnings per share up 34%. Forward numbers we can see they are slightly lower but they are still attractive. Forward EPS that's expected just shy of 15% and analysts are forecasting long-term EPS growth around 12.6 is exactly the type of durable compounding profile that I'm interested in. And here's one of my favorite charts in the entire episode. Since 2005, Moody's has reduced its share count by around 41%. That's more than twice the reduction for S&P Global. So shareholders aren't just receiving business growth. Their claim on that business, well, it keeps on getting larger. And then when we take a look at free cash flow, well, Moody's free cash flows increased more than 500% since 2005. Is exactly what you want from a capital light compounder. And for once, the valuation isn't completely ridiculous. Yes, in isolation it does look high at 2627 but sitting at this point it is lower than their 5year average which sits around 33 and when we take a look at the blue tunnel we actually get an undervaluation signal although this is something we have seen from the beginning of 2026 over the last 5 10 years actually I'd say 80 to 90% of the last 10 years Moody's traded at a premium investors were more than happy to pay this price now we get to see it in a very very rare undervalued level and my DCF midpoint. Well, it gives a price of $523 against today's 473. That's around a 10% margin of safety and sitting somewhere around 10 to 11% upside before considering the longerterm compounding. But the scenario table that we have here is more revealing at 10% free cash flow growth. Fair value falls around $458. Not too far off today's price. at 12% growth 523 at 14 almost $600. So you don't need heroic assumptions here but you do need Moody's to remain a double-digit compounder. If we look at the reverse DCF while it sits at 10 12% it does feel achievable given the underlining EPS growth outlook but not so easy that I call this a screaming bargain. And that's my Moody's conclusion. This is the classic example of a company where I'd rather pay a fair price for exceptional economics than wait forever for some imaginary 15 times earnings entry. So my conclusion for Moody's is an accumulate for me. I like it more than Google on pure valuation today, but I still want a slightly larger margin of safety before calling it one of the best buyers on the list. And this next business might be even easier to love. Unfortunately, its stock is far harder to justify. But before we dive into Costco, just to let you know that we release one weekly article where we uncover severely undervalued stocks as well as what's gone in the market over the last few days. So you can click below, sign up and read all of these straight away. Now Costco is up around 10% year to date. Over the last year, it's actually down 2% which is fairly rare for this company. When we zoom out to the last 10 years, this one's massively outperformed the S&P 500. trading somewhere towards 52- week lows with a four out of five buy rating from Wall Street. And just days ago, they reported July net sales, which was 23.1 billion, up 10.7% year-over-year. For the first 48 weeks, sales were up 10.1% and total comparable sales grew 8.9. Digitally enabled sales jumped 17.7. And if you adjust for gasoline and FX, while the underlining business still looks incredibly healthy and the reason that Costco deserves a premium is obvious here, card holders per warehouse have risen from roughly 110,000 in 2012 to 160,000 today. And each warehouse, well, as we can see, is becoming more productive. Costco operating income per US warehouse has climbed around 11.2 2 million versus roughly 5.3 for Walmart. That density is incredibly difficult for competitors to replicate. Now, Wall Street do like this one, but they don't see massive upside. Average price target of $1,77 indicating 14% upside. We can see range $740, higherend $1,300. And the growth, it does remain excellent for a retailer of this size. Revenue was up 9% year-over-year. EBIT DA was up 11%, EBIT sitting at 11, and earnings per share that was up around 12 to 13%. But here's the problem. you're paying pretty much around 46 times 2026 earnings, 42 times 2027, 38 2028, and 35 times 2029, where consensus EPS growth across all of these years as we can see here is roughly 10 to 13% gradually moderating towards high singledigit is an enormous multiple for this growth rate. And I'm sure somebody will correctly point out that Costco, while it isn't expensive relative to Costco, its current historical type forward multiple is almost exactly in line with its 5-year average. But that's not enough for me. A stock doesn't become attractive simply because investors have consistently paid a huge premium for it before. My medium DCF using 14% free cash flow growth lands around $826. Given where the stock is today, well, we can see a premium of 15%. And using 10% growth will fair value drops to 651. Using 14 middle 8 to six and the more optimistic at 18 gets to just above $1,000. The reverse DCF well in fact it implies 16.3% growth is considerably above the 10 to 12% fundamental growth numbers that analysts are currently expecting. So Costco gives us perhaps the clearest verdict in today's episode. Phenomenal business, phenomenal execution, but just a price that I don't love. At around $950, I'm personally waiting closer to the low800s, the conversation becomes much more interesting. And that brings us to a company where the valuation is much less demanding. While the underlining consumer data may be considerably stronger than people realize, that's American Express, $343, down roughly 7% year to date, trading around 19 times Ford earnings. Nothing about this in honesty screams a bargain. Yet you can see it's trading around midpoint of the 52- week range. Double buy rating but on the weaker side from seeing Alpha and Wall Street. But listen to what the actual business is telling us. Management says delinquency and write-off rates remain below 2019 levels. Through the first half, revenue grew 11% EPS14 and overall spending in the latest quarter was up roughly 9.4% FX adjusted. And the US consumer bill business is actually accelerating. 7% then 9 9 10 and now 11% year-over-year. That's not a consumer falling apart. Even more interesting is who's driving it. Gen Z spending grew 40% year-over-year. Millennials 14%, Gen X 10%. And the younger customer engagement matters because American Express has also become far better at monetizing the relationship. Average fee per cards increased from $61 to $131 since 2019. That's roughly 115% total growth and a 12.5% KGA is not simply a payments network. It's a premium membership ecosystem. And travel while that's still healthy too. Management says global travel is up around 10%, airline spending also around 10. And they see no evidence of a general slowdown. Wall Street however see the lowest upside 9% over the next year $374 price target range 315 to450 at the top end and the growth profile well when we take a look revenue was up near 12% year-over-year forward revenue sitting just shy of 10 and forward EPS growth expected around 12.8% 8% and consensus has 2026 EPS estimate at 1764 2027 just above $20 and at today's price that compresses forward multiple around 17 times 2027 earnings. Now this isn't historically dirt cheap. The multiple hit 18.4 versus a five average of 17.8. So again don't confuse reasonable with cheap. Well you'll notice on the blue tunnel we pretty much see it bang in the middle which does tell us potentially a reasonable signal. Zoom out the last 5 10 years. Again, like most today, this one has spent a long time trading at a premium. As of today, though, sitting, as we said, in a reasonable level. But my combined valuation, well, it comes around $379, roughly around 10% above today's price. As we said, Wall Street, their price target in a fairly similar area. And for American Express specifically, well, the DDM $47, I put more weight on normalized earnings and dividend based valuation rather than the traditional industrial company free cash flow DCF because remember it is a financial business. And what makes me interested isn't a huge theoretical discount is that I'm getting a premium franchise, strong credit quality, and double digit per share growth at a valuation that I can actually justify. So for me, American Express is a buy accumulate around these levels. Definitely not the cheapest stock today, but potentially one of the better combinations of quality and valuation. And now we get to the stock where the valuation becomes much harder to ignore. T-Mobile sits around $180. 52- week high, well, that sits at 262. So despite the recent bounce with still roughly 31% below the high in terms of Wall Street near strong buy rating, 4.4 four out of five. We can see Alpha giving it a buy four out of five where it's trading right there towards 52- week lows. Now bear in mind their latest quarter which they reported not long ago wasn't disastrous. EPS in fact came in 299 versus 260 expected a rough 15% beat. Revenue it only missed by around 1%. And more importantly consensus expects 2026 EPS of 1095 2027 just below $14. That's a very large step higher. And at $180, you're paying around 16.4 time 26 earnings and only about 13 times 2027. With Wall Street seeing 35% upside over the next year, $243 price target, as high from some analysts at 300, as low from others at 169, which isn't far off where it sits today. And this isn't a zero growth telecom. Revenue is currently growing around 9.7% with forward revenue expected slow to around 6.6. 6 forward EBIT DAR growth 8.3 forward EBIT growth at 10.4 and long-term EPS expectations sitting just shy of 18 is a very different profile from the telecom companies many investors grew up with and T-Mobile's post-paid customer base has continued moving sharply higher over the last several years. I wouldn't compare every number on this chart directly because the companies use different customer definitions, but the direction is unmistakable. T-Mobile continues to expand its post-paid relationship base at a much faster pace than the mature trajectory we see elsewhere. And then look at valuation. Historically, we can see it trades around 20. Now it's trading around 14. So much lower, potentially undervalued. And the dividend yield has risen to 2.3%. Compare that with a 5year of 1.6. For once, you're actually getting paid more while paying a lower multiple. And that's also confirmed on the blue tunnel. We can see the disconnect on the bottom end. And my DCF looks almost absurdly attractive. Even with only 2% future free cash flow growth, the model produces a value of $233, 4% 286 at 6% 348. Those are enormous theoretical upside numbers, but I wouldn't blindly trust this. T-Mobile's free cash flow base has changed massively over the last several years. So we can see the starting point matters more than whether we plug in four or 6% and there's also more than 120 billion of debt. This has to be part of the conversation. That's why the simpler 2027 earnings argument is what convinces me more. We're talking around 13 times next year's estimated earnings for this growth profile is genuinely interesting. So of the five stocks we've looked at so far, T-Mobile US currently gives me the strongest pure margin of safety setup. I'd be willing to accumulate it here. But there's one stock left and it's now worth roughly three trillion. Yet the headline valuation makes it look almost suspiciously cheap and that's Amazon which trades around $272 up around $18% this year and very close to 52 week and all-time highs at $287. So unlike T-Mobile, we're not buying obvious weakness and we can see a double strong buy from Wall Street and Quant respectable buy from Seek Alpha and their operating results are extraordinary. Q2 revenue reached 200.6 billion up around 20% year-over-year. Online stores grew 15%, third party seller services 16, advertising 26, and AWS an enormous 37%. In fact, AWS annual recurring revenues now reach around 169 billion. Back in 2019, that figure was around 40 billion. And the latest quarter shows something remarkable. AWS, Azour, and Google Cloud each added roughly 18 to 19 billion of annualized recurring revenue. Nobody is obviously losing yet. And Wall Street forecast around 20% upside over the next year, $326 target price with a range of $230 to $400. Now, Amazon's broader growth numbers are equally impressive. Revenue grew 16% year-over-year. Forward revenue sitting at 14%. But forward EBIT DR that sits at 23, forward EBIT of 27, and EPS sitting above 23. Well, this is what we would call operating leverage. And you can see it directly in the margins. EBIT margin now sits at 12% versus a 5year average that sits at 7. EBITRA margin that sits at 22% versus around 15% historically. Amazon, well, it doesn't need revenue to double every few years anymore. If the mix keeps shifting towards AWS, advertising, and higher margin services, profit can grow considerably faster than sales. But here's where the headline valuation becomes dangerous. Amazon reported roughly 62.6 billion of net income in the graphic, but around 53.4 billion, that was others, which was primarily investment gains in relation to anthropic. It's why 2026 EPS estimate sits around $1230, but 2027 actually falls to $1040. The current year's earnings base, well, it's not clean. So, the headline 22 times earnings multiple isn't quite what it looks like. 2027, it actually increases close to 26 times earnings. Still, against roughly 20% longerterm expected EPS growth, the forward PG around 1.1 is much more reasonable than Amazon's reputation would suggest. The real issue well it's cash flow. AI investment has become so enormous that hyperscaler free cash flow is being temporarily crushed and Amazon's capab ratio well it's above 22%. When we take a look at the last 5-year average it sits around 13. It's levered free cash flow margin that's also collapsed. And we can see that levered free cash flow growth well that's down almost 90% year-over-year. So the bull case requires one huge assumption. Today's infrastructure spend eventually converts into tomorrow's cash generation. And if Amazon's earnings power develops anything like the long-term trajectory shown here, that investment, well, it can pay off spectacularly. But those are very large numbers and therefore very large expectations. And my medium DCF lands around $36 versus today's price. That's roughly low double-digit upside. At the lower case when we take a look here at 8% 269 there's effectively no upside higher case 347 but again understand what this model is really assuming is not simply 12% free cash flow growth is assuming that free cash flow gets crushed during this cavic cycle and then normalizes dramatically higher. These numbers well they're effectively taken from analyst expectations. So, Amazon for me is a buy accumulate, but not because 22 times reported earnings is cheap. It's because I think the underlining operating leverage can eventually justify today's enormous infrastructure bill. So, let's rank all six from the stock I'm least interested in adding today to the one that I think gives us the best current setup. And at number six, it is in fact Costco. I love the company, but 40 plus times Ford earnings and reverse DCF that's demanding 16% growth is simply too rich for me. And number five, it is Alphabet. That might surprise some people. The business, while it is phenomenal, but current earnings are messy, and my DCF gives me essentially no margin of safety at today's price. I would happily keep owning it. I just wouldn't chase it after this rebound unless the price gives me more room for error. At number four, Moody's. This is probably the highest quality underfollowed business in today's list. Doubledigit compounding, huge buybacks, capital light economics, and a valuation below its own historical norm. I like it. I just don't think the discount is enormous. At number three, American Express. The consumer data is much stronger than many investors realize. And around 17 times next year earnings for a business with doubledigit EPS growth, premium customers, and strong credit quality is a setup that I can definitely work with. At number two, Amazon. AWS is accelerating, advertising is growing rapidly, and margins across the company are structurally improving. The enormous risk though is capex. The investment cycle is destroyed near-term free cash flow. So, you're betting that today's spending creates tomorrow's much larger cash machine. At $272, though, I think the riskreward is attractive enough to accumulate, but not so attractive that I'd ignore valuation entirely. And at number one, it would be T-Mobile. Not because it's the best company of the six, it isn't, but because investing is ultimately about price relative to what you're getting at around 13 times 2027 earnings, it changes the equation dramatically. The stock is also roughly 30% below its high. The multiple issues compressed and earnings are still expected to grow materially. Now, I don't believe the DCF 60 to 90% upside should be taken literally because of the rapidly changing free cash flow base, but I don't need that much upside for this investment to work. And that's really the lesson from today's market. A few weeks ago, investors were terrified, but now they're terrified of missing the rally. Neither emotion should decide what we buy. The underlining earnings backdrop is incredibly strong. Strong enough that an S&P 8000 call no longer sounds completely ridiculous. But technology also just gained more than 11% in 5 days. That is precisely when discipline becomes more important and there are still opportunities. They're just not evenly distributed across the market. And sometimes the better investment is the company nobody is chasing. It's why stocks like Moody's deserves attention alongside Google and Amazon and why T-Mobile can potentially offer a better riskreward despite having nowhere near the same excitement around it. If the market really does chase towards 8,000, I don't need to own everything. I want businesses where earnings can keep compounding and the valuation still leaves me room to be wrong. Let me know though which of the six you'd be buying today and importantly which one you think I'm completely wrong on. As always, if you found the valuation breakdown useful, subscribe and don't forget to sign up to the free weekly newsletter by clicking on the pin comment below. More importantly, have a great day. I'll see you all on the next one.