Alphabet (Alphabet Stock Quote, Chart, News NASDAQ:GOOGL) has had a tremendous run over the past year and with the wholesale drop in the markets the stock has pulled back significantly.
So for those of us wanting to pick up a solid FAANG name on the cheap, portfolio manager Darren Sissons says there’s a method to coming out ahead even as the market continues to slump.
Alphabet had been on fire for a good six or seven months starting in June of last year where the stock sat in the low $1,000 range. Between then and mid-February, GOOGL gained a whopping 47 per cent, climbing to as high as $1530 by February 19.
Much of that momentum came even as the company continued to produce less than sparkling earnings results. Its third quarter delivered in October, for example, missed on earnings while coming out slightly ahead on revenue, while in its fourth quarter from early February featured a beat on earnings but lower-than-expected revenue.
Alphabet ended its 2019 year with total revenues of $161.86 billion, up from $136.82 billion in 2018, representing an 18-per-cent growth rate, with the company revealing in its fourth quarter new breakdowns in revenue, showing separate results for its Search, YouTube ads and Cloud segments. The Google Search engine brought in $98.1 billion in revenue last year, YouTube accounted for $15.1 billion while Alphabet’s Cloud business generated $8.9 billion.
Sissons, of Campbell Lee & Ross Investment Management, says that even with Google’s share price currently in a slide —GOOGL is down 17 per cent since mid-February— interested investors can still make a play on the stock.
“Obviously, this is a this is a higher valuation name that has had a fairly significant run and you’re starting to see it come down,” says Sissons, speaking with BNN Bloomberg on Thursday. “There are a couple of different ways to buy company that you believe that has significant value over the longer term. What you do is on a decline you buy a portion and if it goes down you add a little bit and you increase your weights. And then once you get a recovery of the stock you can trim back to a weight once you’re back into the black.”
“You just move in measured bites,” he said. “From a weight perspective, generally I wait for higher valuation stocks in the one per cent range or even for stocks a little bit riskier, a standard is two and a half per cent. So if you were to buy I’d say put in about half a per cent then you move into two per cent as it gets a little bit lower then you get back to, say, four per cent and trim back and manage your portfolio that way. That’s probably a strategy of how to manage it.”
Investors often look to Alphabet’s R&D as a potential source for future growth, such as in the company’s investments in self-driving cars through its Waymo segment. Earlier this week, Alphabet announced a funding raise of $2.25 billion for Waymo as the company looks to commercialize its autonomous vehicle technology.