While June has not been kind to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock so far, time will attest that it’s a gem in disguise. Every now and then, we get a stock that is a sure thing, and Google stock fits the bill.
This is a company that completely revolutionized the way the world uses the internet. I remember the early days when I had to explain to my friends what “Googling it” meant. Now it’s the behemoth of search, among other things.
The Monday madness made for a perfect place to go long in GOOGL stock.
Companies that are so successful become vulnerable to regulatory scrutiny. Microsoft (NASDAQ:MSFT) was the high profile modern example of this. Now it’s GOOGL’s turn.
For years we’ve seen the headlines of fines from the E.U., but more recently the attacks came onshore. The U.S. political rhetoric took a step up since the Facebook (NASDAQ:FB) Cambridge Analytica incident. Now, attacking the mega-cap corporations has become a popular soapbox for politicians to run their campaigns.
But, on Monday, this took a wild turn.
We had a flurry of headlines targeting GOOGL, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and FB. This caused the Nasdaq Composite to fall 2.2% as the FANG and AAPL collective, which makes up about half of the index, fell 5%.
Those who went long puts into GOOGL and AMZN fears Monday made a fast profit as the turnaround came quickly after on Tuesday.. For example, if you sold the GOOGL March 2020 $800 put or the January AMZN 1200 puts, then you profited $6 per contract in a matter of hours.
But is the rally over? No. The opportunity is still available.
The FANG collective fell 5% on Monday, but the bounce was only 2% on Tuesday. So there is plenty of short-term upside left, but, more importantly, there is plenty of long-term upside in GOOGL stock.
The important part of this bullish thesis is that as big as Google is, it is only monetizing one aspect of its operations. It still has billions of active users that are ripe for the picking. So the upside potential is massive.
This is not to mention other ventures that are outside of its current scope. Take Waymo for example. This is the company that will probably be first to bring autonomous driving to the world. Google owns it so they have a front seat to that new world. Imagine the applications that GOOGL software can incorporate into those for its brands and competitors.
From that perspective, GOOGL is starting to resemble AMZN except at a fraction of the cost. Google sells at a price-to-earnings ratio of 25X, which is three times cheaper than that of AMZN. This is nothing against AMZN, but the point is to highlight the bargain that Google stock is now. This is a position I would hold for the long term.
In the short term, there will be dips. The one from Monday was atypical, but even then, it was not a reason for investors to panic out of the stock. Trading around the Alphabet stock levels shorter term is also okay, but not everyone is that savvy.
I prefer boring, high odds trades and Alphabet stock offers me that opportunity. I can buy the shares and hold for the future, or I can sell puts at lower levels and collect the premiums so I don’t even need a rally to profit.
How to Approach Google Stock Today
Today, I can even do both. I buy half a position of stock and sell the other half in puts or put spreads. This gives me some cushion to withstand the short-term headline risks that are littering the headlines.
President Trump is still in a heated economic war with China, so stocks are vulnerable to wild swings but the overall macroeconomic thesis is still bullish. We have full employment and near zero interest rates. And the global central banks are all committed to fueling the economic fire.
Only a black swan event can ruin this setup and these can happen at any time, so we can’t plan for them. When we invest in any asset, we accept that unknown event risk … otherwise, there would be no reward.
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. Join his live chat room free here.
