The markets have rebound sharply of the December lows and the FANG gang led the way up. The acronym is made up of Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). In fact, as a group, FANG bottomed in November relative to the S&P 500. So clearly they are still the go-to stocks for Wall Street.
I found it funny to hear experts in the media declare that FANG was dead last year and then recommend to their audience to invest in other areas. These are the best companies on the planet, and for someone to declare them gone while they recommend buying other stocks is ridiculous.
For my money, I’d rather take a risk on GOOGL, which I know has a massive cash cow and giant moat around the business. Besides, if its stock is falling then the whole market is also in trouble. Rarely do investors sustain selling in Alphabet stock while the markets are rallying.
Recently, Wall Street took notice of exceptional strength in FB. But GOOGL has also been quietly rallying, because when one is running the others tend to follow. GOOGL is up 25% from the Christmas debacle and sits only 3% from its all-time highs. Clearly it still has investor confidence despite the perception that it was dead money last year.
Why You Should Watch GOOGL Stock
The opportunity today is to own GOOGL stock for both long-term fundamental and short-term technical reasons.
First, the fundamentals are great. After years of executing on plans with little trouble, Alphabet still only sells at a mere 28x trailing price-to-earnings ratio for the trailing 12 months. So these is actual results not forecast models. This is about four times cheaper than NFLX and AMZN. Of the FANG gang, only FB is cheaper but that one is in the process of changing its revenue stream so it is not a clean comparable.
So investing in GOOGL stock for the long term is a winning proposition because they still are the dominant force in search. This is especially true for mobile search, where we all want to be. We now depend on our phones all day, so GOOGL also has our attention all day.
Shorter term, Alphabet stock also has a technical opportunity brewing. GOOGL recently broke out of the $1,148 neckline, which in theory should target the $1,205 zone. The interesting part about it is that this was the major ledge from which it fell 18% starting last October, so I expect some resistance there. There might be a lot of investors stuck from then who want to get out, even.
But as long as GOOGL maintains a higher low trend line, then I expect the bulls to find footing and reload for another attempt at setting new highs. If the bulls can take the stock above $1,211, then they would invite more momentum buyers to help with the fight.
But the same resistance process would repeat itself near or at the all-time highs. But with the help of the general market rally I bet that they can do it. My macroeconomic thesis is that the bulls are in charge and if the geopolitical headlines stay out of the way, the S&P 500 will be above $2,850 soon, and that would definitely help GOOGL break through the resistance.
Shorter term, there are levels to watch below, and they start at $1,164 per share. $1,141 and $1,112 would be the next zones of contentions. Those usually lend support on the way down. But if the markets are rallying, I don’t expect GOOGL to falter.
The bottom line is that long term this company is a winner and should be part of any balanced portfolio. The experts on Wall Street agree since almost all analysts who cover the stock rate is as a buy or strong buy and it’s still trading well below their average price range.
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.
