Last week, shares of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) broke above $1,200 and hit all-time highs. In fact, it wasn’t just Google stock but rather, all of the FANGs making new highs last week.
That includes Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX).
So how much upside does Google really have and should investors pile in?
Given the back-and-forth trade-war rhetoric, stocks are having trouble gaining upside momentum. That includes Alphabet, the FANGs, tech and stocks in general.
The PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) was holding up to the selling pressure, but is starting to show some weakness. Bulls can brush off the trade talk, but only for so long.
The longer it wears on and the longer the tariff list gets, the harder it is for them to buy-the-dip, Google stock included.
So what exactly do we do with Alphabet?
Valuing Google Stock
Let’s think about Alphabet here and all that it owns. It controls the top two most popular websites in the world, that being Google and YouTube. Aside from the latter being the go-to search engine for seemingly everyone (seriously, who’s using Bing or Yahoo! Search?)
YouTube’s engagement numbers are off the charts. The site streams 1 billion hours of content per day.
As if that weren’t enough, remember that it’s still making inroads into Google Cloud, which generates more than $1 billion in sales per quarter.
Alphabet’s also bolstering its smart home products, like Nest and Google Assistant. Finally, its autonomous driving segment, Waymo, is arguably the leader of the budding self-driving robo taxi industry.
These assets are big and admittedly difficult to value. How much would YouTube be worth in a sale today? How about Google search or Waymo?
That’s something that investors can’t plainly answer, but those “moats” are something investors have to take into consideration when they look at Alphabet’s growth profile.
Analysts expect Alphabet to grow sales 23% this year and 18% in 2019. Estimates call for earnings per share of $44.35 per share this year. That values Google at a reasonable 25 times this year’s estimates.
Some may see this as a tad expensive. But considering Alphabet’s exceptional assets along with its strong growth, perhaps these prices aren’t as bad as they seem.
Particularly when we see long-standing consumer products stocks trading at 17 to 20 times earnings with little to no growth, paying 25 times earnings for a high quality company growing sales at 20% seems reasonable.
Google stock isn’t perfect. For instance, TAC expenses have been rising in a concerning matter. But this name, like Apple Inc. (NASDAQ:AAPL) really is a blue-chip tech stock and is worth a premium.
Trading Google Stock
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The charts do not look great for Google. The highs from January look eerily similar to the highs in mid-June. As such, we have a double top forming on the charts, a bearish development for the stock.
However, the key for bulls will be how Google trades going forward. In essence, it needs to form a series of higher lows. It would be most constructive for bulls to defend Google stock near $1,120, the backside of previous downtrend resistance (blue line).
Earlier this month, Alphabet tested this level (at time this was near $1,130) and quickly rallied to new highs.
So it would be bullish to see Google leave this trend-line in the past and find it as support. However, should that fail to happen, it would vital for Google stock to stay above $1,040.
We were hearty buyers of Google stock near $1,000 and we probably still would be.
But I’d love to see Google find support near that slowly-but-surely rising trend-line of support (green line).
If it can’t, it won’t form a series of higher lows and puts $1,000 back on the table. It also puts a range-bound or possible breakdown on the table too.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell was long AAPL.
