The novel coronavirus has taken the U.S. stock market significantly lower since February, but there’s one group that has been outperforming the Dow in the face of terrifying economic data: the FAANGs. Of the five tech behemoths that make up the group, Alphabet (NADSAQ:GOOG,NASDAQ:GOOGL) makes for the best buy right now. Unlike some of its peers, GOOG stock hasn’t climbed to pre-coronavirus highs, but that just means it’s still a bargain buy.
While some FAANGs like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) have seen their share prices return to their former glory, GOOG stock is still trading at a 17% discount from where it was in February.
That’s an opportunity for value investors who want to upgrade their portfolios with great quality stocks like Google.
GOOG Stock a Safe Recession Bet
Alphabet’s relative discount isn’t the only reason it makes for a good pick in the current climate. It’s also a solid stock to have on hand during an economic downturn. While it’s worth noting that Google’s business will certainly suffer in the aftermath of coronavirus, the firm is well positioned to weather the storm and come out stronger.
Ad spending is likely to deteriorate from virtually every angle. This will be especially painful for Google when it comes to the travel industry — a large part of Google’s advertising business.
With that said, Alphabet’s iron-clad financials will protect the company from suffering any long-term damage. Alphabet’s long-term debt obligations total $4.55 billion, which is a drop in the bucket for the tech giant. It’s debt to equity ratio of 2.26 suggests investors can be confident in the firm’s ability to service its loans in just about any scenario.
Not only that, but Alphabet is also sporting one of the heftiest cash piles on Wall Street. The firm has $90 billion stashed away for a rainy day.
That’s going to be a boon for Alphabet as economic pain persists, because it will give the firm the ability to invest in its most promising future bets while competitors struggle to stay afloat. It could even open the door to some strategic acquisitions as the threat of bankruptcy looms over some of Alphabet’s competitors.
Waymo Adds to Alphabet’s Long-Term Value
In the near-to-medium term, Alphabet looks solid. The firm’s long-term case is equally as enticing. There are several long-term growth catalysts under the Alphabet umbrella, but the most promising appears to be Waymo, the company’s autonomous driving arm.
Self-driving cars have been lauded as one of the biggest technological advances of our time, but getting them on the road has been cumbersome because of the safety risks they pose. However, autonomous vehicles have made enormous strides over the past decade and could have their moment in the sun sooner than later.
Waymo has been a leader in the race to develop autonomous vehicles and despite having to ground its fleet due to the Covid-19 pandemic, Google has continued to develop their capabilities. This week Waymo announced a new system it says will make the cars better able to detect and respond to objects.
It’s promising to see Waymo advancing despite coronavirus-related setbacks. If the firm is able to continue pushing forward through this crisis and resulting economic downturn, it could put Waymo head and shoulders above some of its competitors.
Plus, Alphabet could decide to put some of its $90 billion cash pile to work for Waymo by acquiring Lyft (NASDAQ:LYFT). The ride-share service will likely struggle in the months ahead as reduced travel surpasses demand. Coronavirus has slashed Lyft’s share price nearly in half, bringing the firm’s market cap down to $8.77 billion.
That puts Lyft well within Alphabet’s potential budget and opens the door for further progress on the firm’s autonomous driving bets.
The Bottom Line
Alphabet is one of the best picks in today’s market due to the firm’s relative stability. The company is well prepared for an economic downturn and could come out the other side stronger than ever.
While there’s certainly going to be some near-term pain as advertising spending falls, Alphabet is more than prepared to ride out the weakness. GOOG stock makes for one of the best value plays for investors who are in it for the long-term.
