ABC. It’s easy as 123.
Alphabet Inc (GOOG, GOOGL), the tech giant formerly known as Google, had a phenomenal year. It was an even better performer than I imagined when I chose GOOG at the end of 2014 for InvestorPlace’s Best Stocks for 2015 contest.
But it shouldn’t be that big of a surprise in hindsight. Alphabet/Google had a down year in 2014. You had to figure it was too good of a company to fall for two years in a row.
GOOG stock was relatively cheap given its growth prospects. It was still the dominant player in search. And way too much was being made about Facebook’s (FB) emergence in display advertising.
This year clearly showed that the overall online/mobile ad market is big enough for both GOOG and Facebook. They are the Coke (KO) and Pepsi (PEP) of the digital age.
There were also some concerns around this time last year about Google spending too much on acquisitions and investing too heavily on moonshot projects like driverless cars and health care initiatives.
Google made two brilliant moves this year to help allay most of those fears. The company brought in a hot shot investment banker — Morgan Stanley’s (MS) Ruth Porat — to become its new CFO. And she quickly wowed Wall Street by showing that Google would be more disciplined under her watch.
And then there’s the creation of Alphabet itself. By setting up a parent company with separate subsidiaries for Google X, Fiber, Nest and other non-core businesses, investors now have more clarity about these businesses and fewer reasons to worry about them dragging down Google’s profits.
It helps that Alphabet also was smart enough to tap Sundar Pichai, a product guru at the company since 2004, as the CEO of Google. That puts him in charge of the main Google businesses — search, Maps, Apps, YouTube, Chrome and Android. And it frees up co-founders Larry Page and Sergey Brin to focus on the sci-fi/futuristic stuff.
Alphabet is no longer as cheap as it was: Shares now trade for 22 times forward earnings estimates, and it will be tough to duplicate this year’s 40%-plus returns.
Still, it’s a great stock for the long haul and deserves a place in almost any growth investor’s portfolio.
As of this writing, Paul R. La Monica did not hold a position in any of the aforementioned securities.
