Last week, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) stock finally made new all-time highs. This hasn’t come easy and it did it under the radar without much fanfare. Critics of Alphabet stock have had this stigma against it for a while. But now that it has some clean air ahead there should be more upside to come. After all, Google still trails the S&P 500 this year.
Fundamentally, Alphabet stock is not expensive but it has some froth it could shed under the right circumstances. So it won’t a straight shot to the moon, especially if markets correct. GOOGL sells at a price-to-earnings ratio of 28 and 6.5X sales.
But given the momentum it has, it would take a lot to press sell buttons against GOOGL stock for too long. This is a valuable company that has a monster advertising cash cow. GOOGL dominates in search, especially in mobile, and that’s where the whole world is moving to. So it has a good grasp of where it has a sustainable advantage that it could use to further better its prospects.
Google Is Not a One Trick Pony
As always, Alphabet continues to pursue forays into other venues, and three stick out as having excellent potential at becoming significant contributors to the company’s bottom line. First, there is their self-driving subsidiary Waymo. They’ve made tremendous progress there and they have a legitimate shot at dominating the field once the regulations catch up with the technologies.
Then there are the healthcare and banking sectors. GOOGL has recently announced their acquisition of Fitbit (NYSE:FIT). This gives them an entry point into the medical field. With Fitbit data they now can expand their knowledge of their clients so much further and on a personal level they can offer even more services along those lines.
Then, most recently, Alphabet announced its partnership with Citigroup to offer checking accounts as early as next year. This is their follow up to the Google Wallet app, where users can store their credit card information on file for ease of use. Clearly this is a company that is thinking outside of the box and it has the cash and expertise to execute on these plans and more.
Alphabet Stock Has Help From the Charts
Technically, Alphabet stock has a peculiar setup going into year-end. It has recently set a new high just above the resistance levels from April and July of last year. Essentially, this is Google stock bulls’ third attempt at breaking out from this range. And now that they have, their job is to hold this neckline as forward support so they can extend this rally to its fullest potential.
If this market continues to grind higher, then GOOGL stock should overshoot another 10% higher. It is not inconceivable that GOOGL stock could reach $1,500 per share if unobstructed by extraneous headlines. While this is not a guaranteed result, the buyers have the reins, so the sellers are unable to sustain the selling pressure to foil the rally. This means that investors will buy the dips in GOOGL.
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So this roof now has the potential to become forward support. This is not one fine line, but it is a zone of resistance and GOOGL is entering a big void. Now that they crossed into it, it is much easier to advance through it with little resistance. So for those long Alphabet stock, these dips in a bullish overall market are not a reason to leave the stock.
For those looking to get long and profit from a rally, they can start building a tactical position on dips. The fact is that equity buyers are in charge, and Wall Street sentiment is the exact opposite of what it was this time last year. So the bears are at a disadvantage and they will need a new set of negative headlines to break this positive momentum. Rehashes of the same old headlines of hiccups in the tariff war will not do. This is old news and it’s already baked into the stock market.
The bottom line is that Alphabet stock has the momentum to add another 10% of gains in this bullish equity market. Moreover and longer term, if the markets are higher, then so is Google stock.
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 for free here.
