While the run-up among tech companies has been somewhat criticized by the bears, there’s no doubt that the FAANGs are well-positioned not only to weather the novel coronavirus storm, but to thrive in it. Google parent Alphabet (NASDAQ:GOOG, GOOGL) is one such firm. GOOG stock has risen 23% from its March lows but still trades 11% lower than where it was in February.
It’s worth noting that 11% isn’t much in the scheme of things, especially when you consider the economic damage COVID-19 is expected to inflict. But compared to peers like Amazon (NASDAQ:AMZN), which is now trading 8% higher than its February peak, Google looks a bit like a bargain.
Google’s Ability to Weather the Storm
The most compelling reason to pick up GOOG stock now is the firm’s iron-clad balance sheet. The firm is carrying just $5.02 billion in long-term debt and sitting on a cash pile worth $117 billion. Notably, Google’s cash position declined by $2 billion from the fourth quarter of 2019 to the first of 2020, but that war-chest of liquidity is essential for getting through an economic downturn.
Investors can expect the tech giant’s cash position to shrink further in the current quarter, as the real damage from COVID-19 isn’t going to show up in Q1. Really only the back half of March offered the full COVID-19 impact, so investors can expect things to get worse from there.
Google is insulated from, but not immune to, the impact of COVID-19. The company is likely to continue to experience reduced ad spending as businesses struggle to keep their doors open. But that’s where a large cash holding comes in handy.
Another place Google can use that cash is for acquisitions during the economic downturn. Recessions offer cash-rich companies an opportunity to snap up competitors or other smaller businesses that could serve to enhance their own long-term goals.
Alphabet has plenty of offshoots. From its cloud computing arm to AI to autonomous driving, there are plenty of ways a strategic acquisition could boost the company’s profile.
Autonomous Driving Bets
One place investors should be keeping an eye on is autonomous driving, a space that looks primed for accelerated growth in the coming years. Once self-driving cars are on the road and usable by the masses, Alphabet will get a huge medal of honor in a sector that’s likely to be very lucrative.
Alphabet’s Waymo is already at the top of the class when it comes to self-driving cars. The firm’s ability to further invest in itself while competitors struggle to stay afloat should only extend that head-start.
A Navigant Research study of the industry in 2019 ranked Waymo as one of the top four leading developers of autonomous driving technology. The firm conceded that any kind of large-scale rollout of the technology is unlikely for at least another five years, but that Waymo’s future initiatives put it at the top of the industry.
The firm also noted that the autonomous driving industry is likely to see more consolidation in the year to come — something Alphabet and its deep pockets might become involved in.
The Bottom Line on GOOG Stock
Uncertainty is rife among traders right now as economies reopen and analysts look for signs of life among U.S. consumers. It’s unclear whether or not we’ll have the rapid recovery everyone has been hoping for, and that makes the current market’s rally a risky one. One false step could send share prices tumbling.
But that doesn’t mean investors should stay away completely. Companies like Alphabet, whose share prices haven’t skyrocketed to new highs, make for sensible buys. Not only is Alphabet a financially strong company, but its also one with solid long-term potential. Using this opportunity to buy the dip is a good way to use this uncertainty to your advantage.
If another crash follows, you’re holding on to a cash-rich company that will almost certainly make it back to its former highs. If not, you were able to get your hands on a top tier company at a 10% discount. In either scenario, it’s one of the safest investment moves you can make.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.