3 Reasons to Buy Alphabet After Its Recent Selloff


GOOG stock - 3 Reasons to Buy Alphabet After Its Recent Selloff

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The situation has been mixed with Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). GOOG stock is down 25% from its 52-week high. While that’s not as bad as some of its peers — like Amazon (NASDAQ:AMZN), Meta (NASDAQ:FB) and Netflix (NASDAQ:NFLX) — it’s also not as good as other tech stocks. Specifically, that’s Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).

However, I think ignoring Alphabet’s recent selloff is a mistake. Even though the stock broke below key support and has yet to reclaim it, the recent discount in GOOG stock can be looked at as a “sale” to take advantage of. Here’s why.

Weekly chart of GOOG stock
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Source: Chart courtesy of TrendSpider

GOOG stock was recently down more than 25% from its highs, which doesn’t happen all that often. Even at the depths of the pandemic-induced selloff in 2020, shares fell “just” 34%. More often than not, these dips — as they always have been — are an opportunity for Alphabet buyers.

My biggest argument is the financials.

Alphabet generates robust free cash flow and operates with strong margins. It has $134 billion in cash and short-term investments on its balance sheet. In that light, the stock trades at a little more than 10 times cash. In regards to the valuation, investors are paying just 22 times this year’s earnings for what I consider one of the best companies in the world. That brings us to my second argument for owning Alphabet shares.

It owns the two of the most popular websites in the world with Google and YouTube. When it comes to the internet, that’s like owning Boardwalk and Park Place. That’s alongside its robust cloud business as well. Therefore, Alphabet dominates in the video, search, advertising and cloud industries.

Lastly, the company recently announced an additional $70 billion buyback plan. That’s a mammoth buyer to have in the open market, constantly scooping up stock. If that doesn’t count as a solid reason for you, then how about secular growth?

Analysts expect between 15% and 16% revenue growth in each of the next three years. Unfortunately, estimates do call for roughly flat earnings growth this year as the company works through some headwinds. However, analysts also forecast roughly 20% earnings growth next year, 15% in growth in 2024 and almost 20% growth in 2025.

In other words, I think we are simply seeing short-term pain in GOOG stock ahead of long-term gains.

On the date of publication, Bret Kenwell 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.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

Article printed from InvestorPlace Media, https://investorplace.com/2022/05/3-reasons-to-buy-alphabet-after-its-recent-selloff/.

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