Source: PaxForex Premium Analytics Portal, Fundamental Insight
The stock market has been under tremendous pressure lately, and it's not difficult to see why. Inflation has skyrocketed to 40-year highs, the Fed has started to raise interest rates to tackle it, and a host of macroeconomic problems have been worsened by Russia's invasion of Ukraine.
Even the big tech companies have lost their spirit. Consider the stocks of FAANG: Meta Platforms, Amazon, Apple, Netflix, and Alphabet (Google's parent company). These top five U.S. technology companies are down more than 30 percent on average over the year.
Of this group, Alphabet holds the crown of the best investment opportunity at the moment. Down 20% for the year, its valuation is increasingly attractive, and it maintains its success on the financial front. In a stock market rife with uncertainty, Alphabet offers investors a great combination of growth potential and security - and a rare chance to acquire one of the world's leading companies at a historically low valuation.
In the first quarter, Alphabet had sales of $68 billion and earnings per share of $24.62, which matched the consensus forecast of analysts. Given the company's huge market capitalization of $1.54 trillion, its top-line growth of 20% is extremely impressive.
Revenue from the advertising segment, which accounts for 80% of total sales, rose 22% year over year to $54.7 billion. The Google Cloud division also continues to gain momentum, rising 44% to $5.8 billion. One of the fantastic elements of Alphabet is the combination of a robust but still growing core business with fast-growing segments like Google Cloud. The global cloud computing market, which is still in its infancy, is projected to grow 16% a year through 2030 to reach $1.6 trillion.
In addition to steadily growing, the company is practically a money-printing machine. The tech giant boasts $20.9 billion in cash and has generated $69 billion in free cash flow in the past 12 months. That degree of financial flexibility allows the company to reward its shareholders in the grandest of ways. On April 20, the company's board of directors approved another $70 billion in buybacks of Class A and Class C stock.
Not only does Alphabet deliver exceptional financial results, but it also trades at a favorable price-to-earnings ratio, which today stands at 21.2. This is a lower valuation than at the lowest point of the pandemic sell-off in March 2020. It is also 42% below Alphabet's five-year average price-to-earnings ratio of 32.4.
Compared to its rivals, the business looks attractively valued. Before Netflix's recent share price crash, the world's premier search engine was trading at a discount to all but Meta Platforms' FAANG stock. Interestingly, Alphabet has posted the highest earnings growth of any stock in the last year. Normally investors have to pay a premium for superior growth, but in this case, we are being offered a discount. Investors should interpret this as the ultimate buy signal.
Consumer sentiment is at a decade low, and as a result, the market has lost its optimism. The stock prices of many companies, including Alphabet, have fallen nothing more than because of the overall negative sentiment in the stock market. We can't foresee how stock prices will move in the short term, but Alphabet has an excellent investment profile given current economic circumstances. Its business continues to grow even as its valuation moves in the opposite direction. Thus, investors should consider adding Alphabet stock to their long-term portfolios today.
As long as the price is below 2265.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 2117.00
- Take Profit 1: 2040.00
- Take Profit 2: 1950.00
Alternative scenario:
If the level of 2265.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 2265.00
- Take Profit 1: 2365.00
- Take Profit 2: 2465.00
