Alphabet, a.k.a. Google, is a company that’s known to everyone. But sometimes, GOOGL stock gets surprisingly undervalued.
I recently added a very famous company’s stock to my Cabot Undervalued Stock Advisor’s portfolio. Investors promptly sent me emails asking whether I’d lost my mind. That’s because investors tend to think of famous, popular stocks as always being overvalued. They didn’t perceive the stock as ever being a bargain.
The truth is, any stock can be overvalued or undervalued, depending on two main numbers: share price and profit. If profit is growing while the share price is treading water, that can be a set-up for an undervalued stock scenario, drawing the attention of professional investors who are constantly assessing risk and know how to identify capital gain opportunities.
Here is a list of some very popular companies and the profits that my investors made when I recommended these stocks during brief periods of undervaluation:
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Adobe Systems (ADBE): 58.5% profit in 20.2 months
Amazon.com (AMZN): 15.8% profit in 6.7 months
Apple (AAPL): 41.1% profit in 13.5 months.
Applied Materials (AMAT): 37.9% profit in 6.4 months.
Those are fantastic returns … and I’m still at the beginning of the alphabet! And what a coincidence, because Alphabet (GOOGL), parent company of Google, is the company that I’m recommending to you today.
GOOGL Stock Undervalued
Like Apple, Alphabet is a company that has large annual swings in profit growth. Alphabet’s earnings per share (EPS) fell 6.8% in 2017, then rose 36.5% in 2018. As investors are influenced by profit trends, they partake in emotional trading of the stock. Therefore, sometimes GOOGL stock is undervalued and sometimes it’s overvalued.
Alphabet is now completing a year of slow earnings growth, with EPS expected to rise just 5.9%. That’s created a buying opportunity, just in time for a prosperous new year, when analysts expect Alphabet’s EPS to rise 17.1%. When a very large company expects double-digit earnings growth, institutional investors all around the globe take notice!
Alphabet is generating 85% of revenue from Google’s sales of ad space and ad technology. Third-quarter revenue rose 20% vs. a year ago, so the company’s still on a roll. But Alphabet isn’t just an advertising company. They’re also expanding in many directions, which are likely to lead to continued revenue and profit growth for years to come.
Alphabet has a large and growing cloud computing business that generated about $2 billion in revenue last quarter, and into which the company is investing heavily. The company has also had a hand in the smartphone business, and debuted the Pixel 3a this year, boosting sales for Alphabet when most smartphone makers experience a sales slump. Additionally, Alphabet owns the ever-popular YouTube.
More recently, Alphabet is aiming to compete with Apple and Samsung by entering the wearable devices market with plans to purchase Fitbit for $2.1 billion. They’re also buying Fossil Group’s intellectual property related to smartwatch technology. And just this week, the company announced plans to offer checking accounts to consumers through Citibank and a credit union at Stanford University.
Waymo LLC, a subsidiary of Alphabet, and a self-driving vehicle company, has begun offering limited “rider-only” trips in Phoenix, Arizona. These are taxi rides that don’t require an attendant. The company is also exploring delivery services.
In the wake of Alphabet’s recent third-quarter earnings release, 13 investment firms raised their price targets on the stock to a range of 1,250-1,550. As a person who stares at Wall Street’s reactions to stock market news every day, I can assure you that 13 simultaneous target price increases represents a tidal wave of bullish sentiment!
Buy GOOGL Stock Now
There’s more to Alphabet than their market dominance, product innovation and acquisitions. Alphabet stock price has a story all its own. Take a look at this price chart:
GOOGL rose tremendously in 2016 and 2017, then peaked in July 2018. Since that time, the stock has had several price corrections, trading consistently between 1,000 and 1,300. It’s quite normal for a stock to establish a sideways trading pattern after a large run-up. The bigger news is that GOOGL appears to be done churning in place; instead, it’s ready to finally break past 1,300. I expect the new run-up to begin immediately. (If I’d expected anything different, I would have written about another stock today!)
Traders and growth stock investors should buy GOOGL stock now for prospects of strong capital gains in 2020 that mirror excitement over the coming year’s earnings growth.