Buy Alphabet over Meta Platforms, this portfolio manager says

Both stocks are down significantly this year but for your money in the online ad space, you’d be better off buying Google parent company Alphabet (Alphabet Stock Quote, Charts, News, Analysts, Financials NASDAQ:GOOGL) over Meta Platforms (Meta Platforms Stock Quote, Charts, News, Analysts, Financials NASDAQ:META). That’s the take from Christine Poole of GlobeInvest Capital Management, who says investors will want to buy GOOGL on the pullback.

“We own Alphabet and we’ve held it for a number of years,” said Poole, CEO of GlobeInvest, who spoke on BNN Bloomberg on Tuesday. “Obviously, it’s a play for online advertising where it’s the go-to company if you want to participate in that growth.”

“We still think it’s growing. It’s always been our preference to own Alphabet over Facebook/Meta and we continue to think that Alphabet is the better play,” she said.

With the market turn away from tech and growth-oriented stocks over the past year, both Alphabet and Meta Platforms are sporting negative returns for the year-to-date as well as over the last 12 months, although Meta’s drop has been more dramatic.

With a market cap currently at $445 billion, Meta Platforms saw its share price fall earlier this year on management’s lowered guidance for the 2022 year. META has fallen from around the $380 mark last September to around $320 per share by February of this year. That’s when the company released quarterly earnings with the muted revenue guidance which caused the stock to fall below $240. It’s been more bad luck since then, as META is currently down to the $160-$180 level, representing about a 47 per cent drop since last September’s highs.

In Alphabet’s case, with a market cap more than three times the size of Meta’s at $1.472 trillion and after accounting for Monday’s 20-for-one stock split, GOOGL hit a high of about $140 as of late last year and early 2022. It’s now down to around $115 per share, making for about an 18 per cent decline from its highs.

Poole says Alphabet is looking attractive at these levels.

“Given the pullback we’ve seen in [GOOGL’s] share price, the valuation is much more attractive. It’s trading at about 20x forward earnings and they have a lot of cash on their balance sheet. And if you strip out cash per share, it even trades at a lower multiples,” she said.

“So, this is a stock that we add for new client money and we add it on pullbacks,” she said.

With its dominant position in online advertising, Google has been under attack for years now by regulators concerned over anti-trust issues, with regulators in the European Commission, fining the company a whopping €8 billion combined from a number of cases brought forward. In the United States, as well, Google and parent company have had to deal with pressure from the Department of Justice, with the Wall Street Journal recently reporting that Google has offered to hive off some of its ad tech business into a separate company in order to comply with DOJ concerns that Google is unfairly playing both sides of the market in online advertising.

Alphabet’s heft in the markets is huge, but for retail investors, buying stock is now a lot more affordable at around $115 a pop versus over $2,000 per share previously. But the size of the company — Alphabet had revenue of $257 billion last year — may seem daunting to new investors who might worry that growth could be a lot harder to come by compared to, say, a smaller cap stock that’s still scaling.

Poole says not necessarily.

“Alphabet is a very large cap stock, [but] share price movement is going to be based on the earnings power of the company. We think Google has great long term earnings power, and the stock price will move on that, so I don’t really think that its large market cap should that should hamper what the share price does over the long term,” Poole said.