Alphabet Stock Remains a Sound Bet for the Future

Trading equities is now more confusing than ever. The 2020 pandemic crisis hit the reset button for the whole world including Wall Street. Therefore, it is a good idea to revisit the start of it when evaluating the status quo of current stocks. For example, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock is still 77% above the correction levels from Covid-19 outbreak.

Logo of Alphabet (GOOG) website displayed on the screen of the mobile device. alphabet logo visible on display of modern smartphone on white
Source: turbaliska / Shutterstock.com

Judging by that, one would not know there is even a correction currently ongoing in the indices. GOOGL stock, even at its lows last month, was still 65% above that mark. While this sounds bullish, it is also a source of technical risk.

Long-term Alphabet stock is safe to hold, but short term, I would not go all in or add now. Leaving room to add later makes perfect sense in this environment.

I am a believer in the bullish fundamental thesis, but having a thin support line below makes me uneasy. It presents an easy target for the bears, and it is too close for comfort. If for whatever reason GOOGL stock falls below $2,500, it will trigger a bearish pattern. The target from that could be 12% lower.

Under normal circumstances I would have more confidence in it holding support. However, these days, equities are under threat from a slew of headline sources. The headwinds are many, so the bears have help.

First there are the macroeconomic worries from the Federal Reserve ending the quantitative easing and starting a tightening cycle. That alone was a large source of fear for investors throughout all of 2021. Add to it now we have serious geopolitical struggles and the headlines include conversations of World War III. Therefore, fundamental homework must come with an extra level of caution above normal.

Regardless of my conviction in GOOGL stock, I think you should leave room for doubt as well.

GOOGL Stock Is Worth the Risk

Alphabet (GOOGL) Stock Chart Showing Important Support Level
Source: Charts by TradingView

Valuation is not a problem, despite of its large stock ticket price. Even though it has rallied so much, the equity doesn’t carry extra bloat. The price-to-earnings (P/E) ratio is still 24x, and that’s 11% cheaper than Apple (NASDAQ:AAPL).

Price-to-sales is also humble, under 8x, so buyers of the stock have realistic expectations. They are not likely to panic too badly, but that doesn’t mean it has cement below it. Alphabet has my passing grade on the fundamental part of the due diligence. It this the leader of its industry and an overall behemoth. So digging too deep checking into its financial health is a waste time. It’s pretty much an ATM machine delivering impressive growth with no apparent letup.

While there aren’t sure things on Wall Street, GOOGL stock comes pretty close. If it fails, then the whole market has also crashed. Management hasn’t had a faux-pas in years, so it has earned the benefit of the doubt. As for the market-wide crash risk, it is a possible scenario, especially from these altitudes. The dot com bubble and the 2008 global crash levels are a spec of dust 65% below.

At the depth of the March 2020 lows, the S&P 500 was still almost 30% above those levels. Clearly, Wall Street is confident with its current valuations.

Fear May Be a Fleeting Concept

However, this year I noticed selling sessions that hint at real underlying fear, but they haven’t lasted. Meanwhile, the CBOE Volatility Index (INDEXCBOE:VIX) is high but not honest. I find it hard to reconcile a VIX above 30, and have Clover Health (NASDAQ:CLOV) stock be green concurrently. When the VIX is reflecting this much fear, investors don’t usually buy questionable tickers like CLOV.

For the foreseeable future, I can count on GOOGL stock to do as well or better than the indices. It’s too bad that the FANG gang broke up, because two of them fell far past their respective support levels. Meta Platforms (NASDAQ:FB) and Netflix (NASDAQ:NFLX) fell so deep that they reached levels below 2019, even 2018.

Nothing major has changed within their businesses, it was more about investor expectation. This leaves GOOGL and Amazon (NASDAQ:AMZN) stock still perched so high above their pre-pandemic levels. Although I would hold Alphabet stock from an investment perspective, I would favor buying into new positions of FB. After losing 40% from its earnings report, it might have faster and more upside potential to make up mid term.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.


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