Ahead of third quarter earnings next week from Google parent Alphabet (Alphabet Stock Quote, Charts, News, Analysts, Financials NASDAQ:GOOGL), investors thinking of buying the stock at current levels should’t think too hard, says portfolio manager Bruce Murray, who just named GOOGL a Top Pick for the 12 months ahead, saying investors will want to continue owning a piece of this Internet juggernaut.
“Alphabet is one of our largest holdings, and we just think the company is on long-term growth. The Internet is maybe not in its infancy anymore but it’s certainly not in its old age and it’s still continuing to grow,” said Murray, CEO of The Murray Wealth Group, who spoke on BNN Bloomberg on Friday.
Alphabet shares have slid further in recent weeks, dropping the stock by about 17 per cent since mid-August. That puts GOOGL at a year-to-date negative return of about 31 per cent. That’s about par for the course for technology stocks this year, with the tech-heavy Nasdaq Index currently at negative 33 per cent for 2022. The broader S&P 500 sits at about negative 23 per cent for the year.
The big American tech stocks like Alphabet, Apple, Amazon, Meta Platforms and Microsoft continues to be a top-of-mind concern for investors, and why not, with the combined market capitalization of those five names making up about 20 per cent of the S&P Index and tech altogether counting for over 25 per cent.
That means where those companies go, so goes the market itself in large part. And while signs point to further volatility as central bankers like the Federal Reserve and the Bank of Canada continue to raise interest rates to tame economies and fight inflation, Murray says investors can feel confident that owning Alphabet will continue to be a good choice despite the current ups and downs.
“Alphabet dominates search, they own the cell phone business through Android with Apple and they’re the number three player in large-scale computer moving to the cloud behind Microsoft and Amazon,” Murray said.
“They’re so profitable — they’ve spent a lot of money on exotic healthcare and moonshots and [for example] Waymo — but there’s a lot of room there [so that] if those businesses don’t work and they shut them down the expenses will drop. So, this is a fat company making a lot of money and it has everything you need to grow,” he said.
Alphabet released its second quarter financials in late July, showing revenue up 13 per cent year-over-year to $69.685 billion compared to a 62 per cent year-over-year increase for the previous Q2. Net income was $16.002 billion and diluted EPS was $1.21 per share compared to $1.36 per share a year earlier. Both top and bottom lines came in under analysts’ forecasts, which called for $69.9 billion in revenue and $1.28 per share in earnings.
“In the second quarter our performance was driven by Search and Cloud,” said CEO of Alphabet and Google Sundar Pichai in a press release. “The investments we’ve made over the years in AI and computing are helping to make our services particularly valuable for consumers, and highly effective for businesses of all sizes. As we sharpen our focus, we’ll continue to invest responsibly in deep computer science for the long-term.”
The tech industry has been going through a period of contraction this year, with companies having to lay off workers after years of expansion punctuated by a dramatic surge in business during the first two years of the pandemic.
Alphabet has reportedly also been feeling the pinch. As reported by CNBC, the company held an all-hands meeting last month where employees expressed dissatisfaction over recent cuts to travel and entertainment budgets as Google, which depends heavily on online advertising for its revenue, has seen a slow down in ad spend as companies tighten their belts within the current recession-tinged economic environment.
Responding to employees concerns, Pichai had said, “The fact that we are being a bit more responsible through one of the toughest macroeconomic conditions underway in the past decade, I think it’s important that as a company, we pull together to get through moments like this.”
But Alphabet proponents are pointing to continued growth expected in the online ad industry as good news for the company and stock going forward. Monness Crespi Hardt analyst Brian White recently supported his Buy recommendation on the stock, saying, “We believe Alphabet is well positioned to capitalize on the long-term digital ad trend, participate in the shift of workloads to the cloud, and benefit from digital transformation.”