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Alphabet Stock: Ideal for Extended Investment


In your search for value buys in the stock market, often we make the common mistake of judging a stock by its popularity more than the fundamentals. Investors must remember the cardinal rule for reaping benefits is to bet on a stock that has robust growth indicators as opposed to something that might catch investors fancy at a certain point of time. One such stock is the Alphabet stock.

Just the fact that Alphabet Inc is the parent company for Google, YouTube and a plethora of other Google initiatives should be enough reason for you to stay invested in the counter but analysts say there are more reasons why this Alphabet stock should be on your must invest list at all times.

Alphabet in terms of mere stock performance if you see is up less than 7% so far this year. This Alphabet Stock 7% appreciation when compared to peers like Facebook which has clocked YTD gains of 27% and Amazon that has seen 24% upmove so far this year or even Netflix that has seen 11%plus upmove, clearly indicates sufficient room for a considerable profit and gain for investors (this is not an investment or trading advice. We are just analyzing the Alphabet Inc stock market for the educational purposes.)

Consistent Alphabet Stock Uptrend

Consistent Alphabet Stock Uptrend

Valuation Matrix

This, no doubt, necessitates a deep study of the fundamentals and the technical trends as seen in the stock thus far. One of the greatest advantages is that this is one of those counters where the management seldom goes wrong. From the success story of Google to the current excitement about Pixel phone, Alphabet stock is one of those stocks that never run out of news points to respond to.

However, the concern here could be given the short-term punishment that the Google stock has seen several times post the earnings action, would it a worthwhile bet for the longer term?

One encouraging point to ponder about at this juncture would be the fact that other peer stocks have seen the surprisingly positive reaction and massive gains following earnings and investors could go long on Alphabet stock or the same reason. It’s fundamental mettle is proven anyway. Therefore if investors go long (they buy) on Alphabet stock , it could be the best way to bring in a cash cow in their investment portfolio and keep reaping benefit from it over a longer duration of time gradually and systematically.

Alphabet Inc is the true example of a scalable company. You can say this from the Alphabet stock price chart, if you analyze it closely. As you see on the below chart, the Alphabet stock price goes down strongly from Dec 7th 2007 to Nov 21st 2008. Also it stops going up twice, once from Dec 11th 2009 to Oct 12th 2012, and another time from Mar 7th 2014 to Jun 19th 2015.

However, each time Alphabet succeeds to break above and keep on going up. This means there is a strong and solid management behind this company:

Strong Resistance Breakout of Alphabet Stock Price

Strong Resistance Breakout of Alphabet Stock Price

Buyback Boost

Buyback by the management is undoubtedly a major boost to the valuations and fundamentals of any company, and it is no different for Alphabet. The moment the management decides to invest money in buying their own shares, it solves the dual purpose of creating a sense of trust in their own brand plus it goes on to immediately pump up the overall worth and stock price (see the above chart).

You could often debate on the utility of the fund used for the $7 million buyback elsewhere, but you need to always agree that on pure stock market basis, a Buyback is a major advantage and positive development at all points.

Google Led By Its Founder

Another big reason why many market analysts give their thumbs up for Alphabet Inc as against other marquee peers like Facebook, Microsoft and Netflix, is the simple thing that this is a company that is still led by its founders. This simple fact ensures that the innovation aspect that forms the core point of any startup is still the key catalyst driving growth and therefore the Alphabet stock will continue to provide a certain amount of novelty and fundamentally strong upmove at regular intervals.

So when you have a position for the long-term, this assurance of regular return is a very big factor. Their whole range of radical new offerings be it the driver-less cars, robots continue to take forward the startup promise of bringing about a sustainable difference in the lives of the people as we saw in the case of Google.

Most of the other peer players say that Alphabet Inc has in this genre are busy struggling with legal battles. Be it Microsoft or Apple, they are all busy settling their legal feuds with Governments and other regulating authorities. This no doubt results in innovators losing out time to dabble with a new radical product and their creativity suffers as well.

Most of the time that they should be concentrating on a new product in used up dealing case after case of some or other form of negotiation and settlement. No doubt these legal dealings divert the core leadership, and their loss is spelling out absolute bonanza for the Alphabet stock.

Why Is Alphabet Stock a Better Bet than Apple?

The key and the most obvious point of comparison is Apple and many investors have rightfully questioned why Alphabet needs a bigger rating in their heart as compared to Apple, an already well-proven player. Well, numbers speak a volume of facts. A mere comparison of the Forward PE of Apple and Alphabet stock over the past 5 years or so indicate that Apple’s PE has reduced to under 10 from 12.52 levels compared to Alphabet which has seen a strong 2-3% growth in the same period.

In terms of Operating margins both Alphabet and Apple have clocked gains but Alphabet’s numbers have been a lot better spread out and therefore make it an absolutely compelling buy in all circumstances.

The variety in Google’s approach and the range in which it has let its innovation operate. While Apple has pretty much remained limited to computers, smartphones and tablet, Alphabet started off with the simple offering of a Google search engine but has managed to now diversify into a significantly large range including robots and driverless cars. This is what I call SCALABILITY.

Conclusion

The Alphabet stock, therefore, provides a solid mix of value and innovation, rationale and radical as well fits into just the right value zone to make it a compelling bet for long-term gains. You can subscribe to our newsletter for more updates on your favourite stocks and the best long-term bets in the stock markets.

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Good luck 🙂



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