Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), which is a part of the widely known “FANG” group of tech stocks, has recently fallen out of favor along with its companions. But the drubbing in Google stock is not all based in issues with its valuation, unlike its counterparts.
Each of these companies has been hit with a combination of factors that have culminated into a perfect storm that eroded faith in their stock futures. But GOOG is caught up in this silly acronym and it gets punished along with Facebook (NASDAQ:FB) headlines that are specific only to FB. GOOG stock also suffers when Netflix’s (NASDAQ:NFLX) valuation comes into question.
So this is a clear case of a sentiment crisis in the Google stock price and not its business prospects. Unfortunately, in early October, GOOG needed to hold the $1130 zone but it didn’t. Its failure brought in momentum sellers for another 10% dip. And when you look at its year-to-date gains, it is still in the red.
Luckily, this strengthens the fundamental argument for Google stock. GOOG’s price-to-earnings ratio is now 24, which is cheaper than Colgate (NYSE:CL) or Clorox (NYSE:CLX). This is illogical action: If the stock markets are truly destined for failure, then all stocks will crater, even CL and CLX and I’d rather be in the likes of GOOGL, Apple (NASDAQ:AAPL) or cash.
After all, we are now a race of smartphone addicts and we want to do everything on them. Google is a growth stock and the company controls almost all mobile advertising.
CLX makes bleach.
Furthermore, GOOG stock also has billions of people engaged on its platforms that it has yet to seriously monetize. YouTube alone is a behemoth that has yet to blossom. There are also the AI and self driving venture.
CL makes toothpaste.
Investors these days are hiding out in safety trades like CLX and CL because they fear the tariff war with China and the runaway U.S. Federal Reserve rate hike cycle. If those fears materialize, I don’t want to be in any stocks in the short term.
So Is It Time to Sell Google Stock?
The short answer is no. GOOG stock should be immune to these headlines. It does not even officially do business in China. And its core business is not materially exposed to rates. Yet there it is, falling with the ailing markets.
Those who have held on to GOOG stock this long would be making a mistake in selling it now. All the reasons for owning it a few months ago still exist, as nothing in the macro economy changed to materially affect its fundamentals.
Despite the headline fears, investors who buy for the long term will recognize the value that is building in Google stock as its price falls. They all have an entry level in mind and all they need are a few days without new headline risk.
Last week, we found out that the Fed may not be as aggressive as many investors feared. And soon we should have some good news from the G20 meeting between Presidents Trump and Xi. I believe that they will eventually come to their senses as all parties involved have a lot to lose. I don’t expect an earth-shattering deal. They will work a boring agreement that would allow both sides to save face without a clear loser.
Nevertheless, these are uncertain times so there are risks. If in January the China tariffs jump up from 10% to 25%, then this selloff will get worse. Google stock will risk testing $885.
In the end, we still have a great macroeconomic global setup, but for now, the fundamentals are held hostage to headlines. Until those fears abate, we have to manage the assets against the risks they impose.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.