If you were thinking about buying Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) during the latest downturn, I hope you pulled the trigger when it was near $1,000. Ending last week up over $1,100 and running even higher now, many investors are wondering if they’ve missed their chance to buy GOOGL stock. That depends.
For long-term investors, the name of the game is having a lower cost basis. For short-term traders, it’s about having momentum working in your favor, whether long or short. We almost never buy the bottom and sell the top, but getting as close as we can always helps.
After last week’s breakout, GOOGL stock certainly has momentum at its back. Shares are up almost $100 apiece over the last week and it’s off to the races. The question now is, will we get a buyable pullback in Alphabet?
Why You Want to Own GOOGL Stock
From a technical perspective, we told investors to buy GOOGL stock on a pullback to $1,010. Alphabet fell a few bucks below that mark, giving their opportunity for entry. However, the problem is that when great entry opportunities like this come by, investors are usually too panicked to step in.
That makes plenty of sense because their hard-earned money is on the line. Who wants to lose that? No one, and the hesitation is totally reasonable. But with certain companies — like Alphabet — we need to realize a few things.
The first is the business. Even though we’re talking about GOOGL stock, don’t think of it as just a stock. Think of Alphabet as a company. We’re talking about an enterprise that has two of the internet’s most popular websites in the world, Google.com and YouTube.com.
The internet is the highway to advertising. While Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) are big players in the internet ad space, Alphabet is considered king and there’s little reason to bet against it. YouTube has numbers you would hardly believe. YouTube users stream more than 1 billion hours per day.
With those two assets, I find little reason to bet against Alphabet. More so though, GOOGL stock is a leader in the driverless car revolution. Some analysts are assigning valuations of more than $150 billion for this unit. Finally, its cloud business is no joke either, helping to drive sales growth higher.
The other reason? Its valuation and balance sheet. GOOGL stock trades at 25 times this year’s earnings, which is reasonable given its ~20% annual revenue run rate and double-digit percentage growth in earnings. Finally, with $106 billion in cash and ~$4 billion in debt, one could consider Alphabet a titan with respect to its balance sheet.
That’s why we step in and buy GOOGL stock on deep pullbacks.
Trading GOOGL Stock
Okay, okay. We get it, Google’s fundamentals are top notch. So what does the chart say for GOOGL stock?
When companies with strong fundamentals go on sale, we buy them. This is particularly true as they fall into support, giving long-term investors a nice cost basis and short-term traders a solid risk/reward. For GOOGL stock, that came into play around $1,000 a share.
That support level held and Alphabet stock jumped back into its falling channel (blue lines). It didn’t take long for shares to power through resistance and run from $1,060 to $1109 in just a few days. Technically, shares were able to close above the 50-day and on Monday, they are trying to close above the 200-day.
If we get a strong push into year end — which statistically, is quite possible — then resistance might not play a huge role just yet. However, it’s worth keeping an eye on this $1,140 area.
It’s just above the 200-day moving average and is a downtrend resistance mark dating back to July, when GOOGL stock hit its all-time highs near $1,300. Just above this area, near $1,160, is the 100-day moving average. If Alphabet can clear this area, it’s all-time highs are on the table. If not though, it will need time to set back up as a long candidate.
Investors can buy on a pullback-and-hold of the 50-day, while more aggressive investors can buy if GOOGL can clear-and-hold $1,130.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long GOOGL and AMZN.
