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Alphabet Breaks Out As Internet Stocks Roll Higher

Stock (Symbol)

Alphabet (GOOGL)

Stock Price

$805

Sector
Technology
Data is as of
September 22, 2016
Expected to Report
Oct 27
Company Description
google_chelsea_lightsAlphabet Inc is a collection of Companies. Alphabet’s collection include Calico, Google’s health and longevity effort; Nest its connected home business; Fiber, its gigabit internet arm; and its investment divisions such as Google Ventures and Google Capital, and incubator projects, such as Google X. These will be managed separately in Alphabet. On October 2, 2015, Google implemented a holding company reorganization pursuant to the Agreement and Plan of Merger (the Merger Agreement), dated as of October 2, 2015, among Google, Alphabet and Maple Technologies Inc., a Delaware corporation (Merger Sub), which resulted in Alphabet owning all of the outstanding capital stock of Google. Pursuant to the Alphabet Merger, Merger Sub, a direct, wholly owned subsidiary of Alphabet and an indirect, wholly owned subsidiary of Google, merged with and into Google, with Google surviving as a direct, wholly owned subsidiary of Alphabet. Source: Thomson Financial
Sharek’s Take
David SharekAlphabet (GOOGL) broke out to a new All-Time high yesterday as the Internet stocks keep roaring higher. I cover around 100 growth stocks — some conservative some high-octane — and the best area for profit growth is in the Internet sector. Last qtr GOOGL delivered 20% profit growth on 21% sales growth, quite impressive for such a large company. The stock sells for a reasonable 24 times earnings, and one could rationalize the company might be worth 30 times earnings, as the company has delivered 21% profit growth for a decade with never a down year in profits. Growth stocks were out of favor from July 2015 through July 2016, and now are back in vogue and have some catching up to do. GOOGL is a great stock as its conservative, comes with a plump estimated long-term growth rate of 18% a year, has delivered profit growth year-in year-out without fail, and is reasonably priced. I think Alphabet can continue to climb higher as the Internet is the hottest sector right now. This stock is a top holding in all my portfolios.
One Year Chart
googl_2016_q3Profits at GOOGL grow consistently on a yearly basis, but are lumpy on a quarterly basis, as you can see in the one-year chart to the right. Last qtr the company delivered 20% profit growth and whipped the 15% estimate. Annual profit estimates rose a little bit across the board. Profit estimates for the next 4 qtrs are 17%, 11%, 23% and 17%. We can’t assume the company will continue to beat estimates because it missed estimates 2QtrsAgo. Chart looks like the start of a move higher, doesn’t it?
Fair Value
googl_2016_q3_phI really think these Internet stocks are undervalued. GOOGL has grown profits each-and-every year since it went public. I think it could be worth 1 1/2 times its growth rate. That would mean a P/E of 18 x 1.5 = 27. Now the stock hasn’t had that kind of P/E in almost a decade, so I think we should take baby steps towards that figure as we don’t quite know if GOOGL can support even a 25 P/E yet.
Bottom Line
googl_2016_q3_10yrGoogle has been a core holding for growth investors ever since it went public at $85 in 2004. This stock offers above average safety and a solid 18% Estimated Long-Term Growth Rate for just 24 times earnings. Internet stocks offer the best growth rates and also the biggest values of any stocks I’m aware of. I think this is the start of a run higher for the sector. GOOGL ranks 1st in the Conservative Portfolio Power Rankings. and 6th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

6 of 37

Aggressive Growth Portfolio

6 of 17

Conservative Stock Portfolio

1 of 36

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