At the risk of sounding like a broken record, Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) is the most elite value stock available. First, the obvious fact is that GOOGL stock owns that little thing called the internet. It may have been invented by former Vice-president Al Gore, but Alphabet took it to a whole new level. By logical deduction, an investment in Alphabet stock is an investment in digitalization — not a bad gig at all!
The other reason why GOOGL stock sits atop an extremely exclusive club is consistency.
Find me a company that is as reliable and has as much potential as Alphabet. The night is still young, but shares have only suffered three annual losses. Of those, only one — in 2008 — registered in the double digits. The other down years in 2010 and 2014 average losses of about 5%.
On the plus side, from 2005 through the end of 2016, GOOGL stock is averaging over 24%. Granted, not every year is stellar. But if the end game is a long-term, steady buffer for your portfolio, you can’t go wrong with Alphabet stock. It probably won’t provide the fireworks of yesteryear, but this is more of a slow burn. Sometimes, you have to have patience for quality work.
Still, I understand the concerns. Psychologically speaking, GOOGL stock has a hefty price tag. Can investors rely upon it over the next ten to twenty years?
The Big Risk With Alphabet Stock
The biggest fundamental risk to GOOGL stock is the “one-trick pony” argument.
As InvestorPlace contributor Lawrence Meyers explains, “Alphabet is the largest digital advertising billboard in the world, with about 88% of its revenues coming from advertising. Moreover, GOOGL stock’s growth has been driven by this spectacular seizure of internet territory from competitors. In fact, during the financial crisis, ad revenues still grew about 8% year-over-year in 2009 despite a worldwide ad revenue decline of 11% that year.”
For now, GOOGL exercises unprecedented dominance, and Alphabet stock is surely buoyed by this leverage. As Meyers further notes, “[i]t could get hit with a 20% decline in total revenues, which would bring it roughly in line with fiscal year 2015 results, and still generate net income of $15 billion or so.” Ordinarily, a double-digit sales hit leads to automatic hemorrhaging in the markets. However, GOOGL stock could earn a reprieve.
The problem is what happens in the future? Will people continue to Google things on the internet? Or will there be some other innovation brought forth by Silicon Valley? It seems ridiculous to ask the question, but we’ve seen this trend before. Not too long ago, the science of instant (physical) photography was exclusively Polaroid‘s domain. Today, Polaroid is basically a shell company. Even the term “instant photography” isn’t used much anymore.
As great as Alphabet stock is, let’s be real — this is not a balanced investment. A paradigm shift in internet advertising can potentially topple GOOGL.
More Good Than Bad for GOOGL
While I respect the risks, I’m confident that the positives far outweigh the negatives for Alphabet stock. First off, the one-trick pony argument doesn’t scare me as much because we’re not talking about commoditized leverage.
What is the internet? Many might answer what they do on the internet, and quite frankly, I don’t want to know. But all the responses you might receive boils down to this — it’s the forum for the exchange of ideas. Ideas never go out of style. Because of that one single fact, I highly doubt that Alphabet will, either.
The internet has evolved, and dramatically so.
What Al Gore invented decades ago metamorphosed into its own, nearly self-aware entity. The true beauty of this network is that it levels the informational playing field. No longer is data strictly limited to the halls of academia. Anybody can propose a new idea, or an innovation, and this can rapidly proliferate without the need for credentials.
That, my friends, is the power of GOOGL stock. This is a company that will adapt and evolve to whatever challenges it faces. So long as they keep that corporate culture intact, you’re not going to find a better value play than Alphabet stock.
GOOGL Stock: Competition Is Still Behind
For those that are worried about Alphabet’s competition, I’d set those aside. Yes, Facebook Inc (NASDAQ:FB) can make some noise, and Amazon.com, Inc. (NASDAQ:AMZN) is always up to something. These are companies that service their sectors like no other. Because of that, people use those services based on their earned reputation.
GOOGL has the internet. That much is obvious because Google is a verb. Other company names invoke a function. We friend each other on Facebook. We buy stuff on Amazon. The commoditized criticism is more applicable to them. Someone might invent a better way to network online. Another person might offer cheaper and faster e-retailing.
But a better way to internet? Again, I highly doubt that anyone can compete with Alphabet. For better or for worse, they’ve got their tentacles entrenched into everything web-related. So you can rest easy with GOOGL stock. Neither the company nor the opportunity is going anywhere but up.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.