Scoop Up Alphabet Stock After Tech’s Big Sell-Off

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As it tries to recover from its most recent plunge, you may be looking to get into the tech sector. Plenty of names have fallen tremendously from their respective past highs. But instead of diving into a few of the former high-fliers, you may want to instead go with a name that’s more blue chip in nature: Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) stock.

a Google Pixel smartphone
Source: Tero Vesalainen / Shutterstock.com

Why go with Google in lieu of say, some of the relatively smaller SaaS names?

It may seem like the market has already priced-in uncertainties. However, that may not necessarily be the case. If inflation keeps up, the Federal Reserve may have to kick its rate hike plans up a notch.

An even greater-than-expected rise in interest rates will result in further multiple compression for names in this space still sporting high sales and earnings multiples. Alphabet, a FAANG component, and parent company of Google and YouTube, doesn’t have that issue. Trading for 23x this year’s expected earnings, it’s more than reasonably priced.

Owning it may not sound too exciting when early stage names seemingly have more upside potential. Yet if you’re looking for a play that could see a moderate rise in value, with significantly less downside risk, then this may be the ticket.

GOOG Stock at a Glance

External factors have been the main reason why Alphabet (at around $2,650 per share today) is slightly in the red (down 7%) so far in 2022. Outside of that, news has largely been positive over the past two months.

For instance, GOOG stock reported strong earnings for the December quarter, when it released results on Feb 1. For the December quarter, revenue came in at $75.33 billion, above estimates calling for a top line of $72.17 billion. Revenue growth from its cloud and search businesses made up for weaker-than-expected advertising revenue from YouTube.

The company also delivered earnings per share of $30.69. That was well above analyst estimates calling for EPS of $27.34 per share. To top things off, along with reporting strong results, it announced plans for a 20-to-1 stock split. While a split has no bearing on the company’s underlying value, making its shares more accessible to retail investors could have a positive impact.

More recently, it has announced its plans to buy cybersecurity firm Mandiant (NASDAQ:MNDT) for $5.4 billion. This deal, which the trillion-dollar company can easily afford, will enable it to enhance its cloud security offerings. Yes, while there have been quite a few positives, admittedly there are few things that have weighed on shares.

Despite Lackluster Sentiment, You May Want to Buy

Outside of market uncertainty, you may be concerned that more company-specific factors could impact the future price performance of GOOG stock. Analyst estimates call for earnings growth to slow down considerably during 2022.

Some web publishers are moving away from Google’s mobile web initiative, citing the potential to earn more ad revenue by operating outside the Google ecosystem. This could signal a future decline in Alphabet’s dominance in digital advertising. In turn, impacting margins, and thinning its economic moat. These two issues are part of the reason why shares today sport such a low valuation.

With the exception of Facebook parent Meta Platforms (NASDAQ:FB), where investors have similar growth concerns, other FAANG stocks keep trading at a valuation premium to GOOG. Even Microsoft (NASDAQ:MSFT), another member of the trillion-dollar club, trades at a premium. However, the market could realize that it has overreacted, by pushing Alphabet to such a low price.

As Louis Navellier argued in January, growth stands to speed back up in the coming years. Earnings are expected to grow by 17.3% in 2023. It’s moving into fast growing areas like the metaverse and self-driving vehicles. The Mandiant deal will grow its presence in cybersecurity, another fast-growing area.

Bottom Line on Alphabet

You may think that the better way to play a tech rebound is to buy the more up-and-coming names in the sector. A good example would be something like Cloudflare (NYSE:NET). However, risk/return with names like this may not be in your favor.

The rise in interest rates could happen slowly, preventing another hard drop. But at the same time, higher rates will make it tough for last year’s high-fliers to fully recover. On the other hand, there’s still the chance rate hikes are more severe than anticipated. In turn, leading to names like NET plunging again.

GOOG stock, on the other hand, has far less downside given its current valuation. Once earnings growth speeds back up, its forward multiple (and in turn its share price) will likely go up as well. With plenty pointing to it making a slow and steady move higher over time, consider it a buy today.

On the date of publication, Thomas Niel 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.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/scoop-up-goog-stock-after-techs-big-sell-off/.

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