Tell me a stock you like better than Google/Alphabet Right Now and Why

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sat Jun 10, 2017 10:50 am

I realize this is an index board which is where I keep most of my money, but what individual stocks (not index funds or ETFs) do you like better than Google right now and what do you agree/disagree with from the below? I'm a simple man but the important and quick takeaways for me are

1. Dominant market share and position in growing search/advertising market
2. Google Cloud positioned to challenge AWS and Azure in massive 20%+ growth market (no cannibalization here given they don't sell on premise servers)
3. Fastest artificial intelligence chip speed (operations per second per watt) with full AI stack (i.e. using its own data to train its own algorithms on its own chips)
4. Potentially has the best autonomous vehicle unit in Waymo and the right people and partnerships to execute
5. Likely has more data than any other company
6. YouTube, Gchat, Google Docs, Waze, Fiber, Nest, Google Home, etc

They have a dominant market position in search/online advertising and a dominant or at least compelling market position in virtually all of the biggest and fastest growing markets (autonomous vehicles, cloud, AI/machine learning).

The S&P 500 is trading at around a 26x P/E and GOOG is trading at 28x 2017 P/E, the multiple on the core business would be even lower if you backed out the unprofitable "Other Bets" that are currently burning cash.

So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?

User avatar
nisiprius
Advisory Board
Posts: 39721
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nisiprius » Sat Jun 10, 2017 10:55 am

Why not ask this in a forum that's devoted to discussions of individual stocks? I don't hang out there myself but Morningstar has a Stock Picks forum that might be worth trying.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

evestor
Posts: 135
Joined: Sat Feb 21, 2015 5:37 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by evestor » Sat Jun 10, 2017 10:57 am

> So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth
> and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple?

Because it isn't that simple.
Taking your pros by number, presenting the bear case for each:
1) This is a saturated market. People are unconvinced it will grow materially from here.
2) Speculative at best.
3) Does not directly translate to market or financial success, and might not be true.
4) Speculative at best.
5) Aspiring to be speculative at best.
6) Monetized to the extent they will be (ie built in to current p/e).

Don't get me wrong, I'm not a Google bear. Huge fan of the company and believe they have many great days ahead of them. But to support a >30x P/E the street needs to be convinced huge earnings growth lies ahead. None of your points suggest this is true...at best they suggest maybe they are true.

To get back to your original question: have you considered NVDA? Granted this is me predicting the past a bit.

Full disclosure: I am a technologist who has never worked for Google but has at one time work for a competitor (>5 years ago), but am generally involved in the tech space. I have no direct financial interest in NVDA unless it is owned by an index fund I own.
Last edited by evestor on Sat Jun 10, 2017 10:58 am, edited 1 time in total.

TallBoy29er
Posts: 812
Joined: Thu Jul 18, 2013 9:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by TallBoy29er » Sat Jun 10, 2017 10:58 am

LFKB wrote:I realize this is an index board which is where I keep most of my money, but what individual stocks (not index funds or ETFs) do you like better than Google right now and what do you agree/disagree with from the below? I'm a simple man but the important and quick takeaways for me are

1. Dominant market share and position in growing search/advertising market agreed
2. Google Cloud positioned to challenge AWS and Azure in massive 20%+ growth market (no cannibalization here given they don't sell on premise servers) yes the market is growing, but i still question google's commitment to challenge here. i've had experience w both aws and google in this category. google just does not have me convinced they can make inroads yet. but (see 5.)
3. Fastest artificial intelligence chip speed (operations per second per watt) with full AI stack (i.e. using its own data to train its own algorithms on its own chips)
4. Potentially has the best autonomous vehicle unit in Waymo and the right people and partnerships to execute
5. Likely has more data than any other company i think this is what could change the game for google. their ability to handle and manage data seems unparalleled. this could put them in a position w unique capabilities
6. YouTube, Gchat, Google Docs, Waze, Fiber, Nest, Google Home, etc
7. the moonshot factory.
Thoughts?
edited to add: i can't comment on stock ownership of google or any other. i left that game after i realized my (lack of) ability.

qwertyjazz
Posts: 1132
Joined: Tue Feb 23, 2016 4:24 am

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by qwertyjazz » Sat Jun 10, 2017 11:01 am

Suggest you stop posting about this on Internet forums and buy as quickly as possible before anyone else finds out. They might push the price up to the appropriate level to account for all of that
G.E. Box "All models are wrong, but some are useful."

TomCat96
Posts: 804
Joined: Sun Oct 18, 2015 12:18 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by TomCat96 » Sat Jun 10, 2017 11:07 am

LFKB wrote:I realize this is an index board which is where I keep most of my money, but what individual stocks (not index funds or ETFs) do you like better than Google right now and what do you agree/disagree with from the below? I'm a simple man but the important and quick takeaways for me are

1. Dominant market share and position in growing search/advertising market
2. Google Cloud positioned to challenge AWS and Azure in massive 20%+ growth market (no cannibalization here given they don't sell on premise servers)
3. Fastest artificial intelligence chip speed (operations per second per watt) with full AI stack (i.e. using its own data to train its own algorithms on its own chips)
4. Potentially has the best autonomous vehicle unit in Waymo and the right people and partnerships to execute
5. Likely has more data than any other company
6. YouTube, Gchat, Google Docs, Waze, Fiber, Nest, Google Home, etc

They have a dominant market position in search/online advertising and a dominant or at least compelling market position in virtually all of the biggest and fastest growing markets (autonomous vehicles, cloud, AI/machine learning).

The S&P 500 is trading at around a 26x P/E and GOOG is trading at 28x 2017 P/E, the multiple on the core business would be even lower if you backed out the unprofitable "Other Bets" that are currently burning cash.

So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?

Because the other members of the S&P 500 (PE 26) are captains of their respective industries as well?

User avatar
Tycoon
Posts: 1500
Joined: Wed Mar 28, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Tycoon » Sat Jun 10, 2017 11:17 am

Why would I buy now? Jimmy Rogers says the end is coming.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. How consistantly wrong do predictions have to be before the faithful learn?

User avatar
David Jay
Posts: 7501
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by David Jay » Sat Jun 10, 2017 12:19 pm

Tycoon wrote:Why would I buy now? Jimmy Rogers says the end is coming.
:D
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Jack FFR1846
Posts: 10764
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Jack FFR1846 » Sat Jun 10, 2017 12:26 pm

Ford

Ford has been beaten down but has its act together, makes stuff it knows how to make with a worldwide client base and is a stable company. It isn't high flying nor does it think it can do everything and anything. Great focus.

Alphabet

They seem to have decided that they want to do every shiny thing that the world has to offer. I'd expect that they're going to start imploding from the absolute lack of focus and weight of their organization. They have random enforcement rules that are all unwritten and double secret probation for websites who use google ads and risk destroying successful websites with their ever changing, retroactively enforceable rules. They've become the evil empire in my mind. They've changed their moto to "do evil if we can get away with it".
Bogle: Smart Beta is stupid

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by KlangFool » Sat Jun 10, 2017 12:33 pm

OP,

Let's assume that everything you said is correct, why would that make Google/Alphabet a good stock to buy? The answer would be no.

Please note that there is a significant difference between a good stock and a good company. In order to be a good stock, it has to beat expectation by a large margin. Everything that you said is built into the expectation and price accordingly. So, unless there is a surprise, the stock will not move. In this case, the expectation is so high that it is more likely to be surprised on not meeting expectation.

Would Google/Alphabet's stock price outgrow the S&P 500 by more than 10% per year over the next years? If not, why bother taking the risk?

KlangFool

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sat Jun 10, 2017 2:56 pm

evestor wrote:> So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth
> and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple?

Because it isn't that simple.
Taking your pros by number, presenting the bear case for each:
1) This is a saturated market. People are unconvinced it will grow materially from here.
2) Speculative at best.
3) Does not directly translate to market or financial success, and might not be true.
4) Speculative at best.
5) Aspiring to be speculative at best.
6) Monetized to the extent they will be (ie built in to current p/e).

Don't get me wrong, I'm not a Google bear. Huge fan of the company and believe they have many great days ahead of them. But to support a >30x P/E the street needs to be convinced huge earnings growth lies ahead. None of your points suggest this is true...at best they suggest maybe they are true.

To get back to your original question: have you considered NVDA? Granted this is me predicting the past a bit.

Full disclosure: I am a technologist who has never worked for Google but has at one time work for a competitor (>5 years ago), but am generally involved in the tech space. I have no direct financial interest in NVDA unless it is owned by an index fund I own.
I only own for individual stocks right now - Google, Amazon, Nvidia and Whole Foods (which I just bought at the beginning of the year). I am surprised by your point on growth relative to the 30x PE. The company has been growing at 20% which is far faster than the market with incredible growth opportunities in front of them. The market on average is trading at a similar PE with far less growth on average. So, if you own total stock market, are you convinced there is huge earnings growth ahead for the entire US market?

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sat Jun 10, 2017 2:58 pm

qwertyjazz wrote:Suggest you stop posting about this on Internet forums and buy as quickly as possible before anyone else finds out. They might push the price up to the appropriate level to account for all of that
I have been buying from $300 to $1,000 and have a large position now, but thank you for the sarcastic response :happy

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sat Jun 10, 2017 3:01 pm

TomCat96 wrote:
LFKB wrote:I realize this is an index board which is where I keep most of my money, but what individual stocks (not index funds or ETFs) do you like better than Google right now and what do you agree/disagree with from the below? I'm a simple man but the important and quick takeaways for me are

1. Dominant market share and position in growing search/advertising market
2. Google Cloud positioned to challenge AWS and Azure in massive 20%+ growth market (no cannibalization here given they don't sell on premise servers)
3. Fastest artificial intelligence chip speed (operations per second per watt) with full AI stack (i.e. using its own data to train its own algorithms on its own chips)
4. Potentially has the best autonomous vehicle unit in Waymo and the right people and partnerships to execute
5. Likely has more data than any other company
6. YouTube, Gchat, Google Docs, Waze, Fiber, Nest, Google Home, etc

They have a dominant market position in search/online advertising and a dominant or at least compelling market position in virtually all of the biggest and fastest growing markets (autonomous vehicles, cloud, AI/machine learning).

The S&P 500 is trading at around a 26x P/E and GOOG is trading at 28x 2017 P/E, the multiple on the core business would be even lower if you backed out the unprofitable "Other Bets" that are currently burning cash.

So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?

Because the other members of the S&P 500 (PE 26) are captains of their respective industries as well?
That's not really true (with maybe a few exceptions) and on average those companies are growing slower with much lower margins, far less future growth opportunities and less entrenched market positions in their respective industries.

User avatar
Kenkat
Posts: 5470
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Kenkat » Sat Jun 10, 2017 3:21 pm

My advice would be to start tracking your performance against some benchmark like Growth Index or S&P 500 Index (if you are not) and see how you do over 3-5 years. It is very difficult for the individual investor to pick stocks and beat the market; many here would say it is nearly impossible. Many people I talk to who claim to be beating the market cannot produce any numbers against a benchmark to back it up.

danaht
Posts: 621
Joined: Sun Oct 18, 2015 11:28 am

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by danaht » Sat Jun 10, 2017 3:30 pm

Jack FFR1846 wrote:Ford

Ford has been beaten down but has its act together, makes stuff it knows how to make with a worldwide client base and is a stable company. It isn't high flying nor does it think it can do everything and anything. Great focus.

Alphabet

They seem to have decided that they want to do every shiny thing that the world has to offer. I'd expect that they're going to start imploding from the absolute lack of focus and weight of their organization. They have random enforcement rules that are all unwritten and double secret probation for websites who use google ads and risk destroying successful websites with their ever changing, retroactively enforceable rules. They've become the evil empire in my mind. They've changed their moto to "do evil if we can get away with it".
I agree with Ford being undervalued and probably a better buy than Alphabet at this time. I would also be very hesitant to buy any of the FANG stocks at this time because of the very high PE ratios. It's very entertaining to read all the articles claiming that Amazon will conquer all retail in the next couple of years and the stock price will go to the moon. Although Amazon is not Google - the two stocks have both been going up together lately.

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sat Jun 10, 2017 3:47 pm

Kenkat wrote:My advice would be to start tracking your performance against some benchmark like Growth Index or S&P 500 Index (if you are not) and see how you do over 3-5 years. It is very difficult for the individual investor to pick stocks and beat the market; many here would say it is nearly impossible. Many people I talk to who claim to be beating the market cannot produce any numbers against a benchmark to back it up.
I've done that and have beat the markets. I'm not an amateur. I'm an investor by profession, albeit in private equity. That said, I still keep the majority of my money in index funds.

The last three deals I've worked on at work have generated 4x, 6x and 8x invested capital within 3-6 years.

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sat Jun 10, 2017 3:52 pm

KlangFool wrote:OP,

Let's assume that everything you said is correct, why would that make Google/Alphabet a good stock to buy? The answer would be no.

Please note that there is a significant difference between a good stock and a good company. In order to be a good stock, it has to beat expectation by a large margin. Everything that you said is built into the expectation and price accordingly. So, unless there is a surprise, the stock will not move. In this case, the expectation is so high that it is more likely to be surprised on not meeting expectation.

Would Google/Alphabet's stock price outgrow the S&P 500 by more than 10% per year over the next years? If not, why bother taking the risk?

KlangFool
I'm confused by this post. You've outlined a really simple way to think about the world of investing which isn't realistic. My expectation is greater than the market right now. I don't think all the items I mentioned are properly priced in. My expectation for Google has been greater than the market in the past, which is why I first purchased the stock at $300 and it is now around $1,000. So clearly it has beaten expectations in the past and outperformed the SP500. I think it will continue to do so but of course I could be wrong.

Avo
Posts: 1099
Joined: Wed Jun 11, 2008 2:21 am
Location: California

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Avo » Sat Jun 10, 2017 3:59 pm

LFKB wrote:I'm not an amateur. I'm an investor by profession
Then why ask for stock-picking advice from amateurs?

jjface
Posts: 2616
Joined: Thu Mar 19, 2015 6:18 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by jjface » Sat Jun 10, 2017 4:01 pm

Chicken stock is the only stock I will buy on its own.

ANC
Posts: 140
Joined: Sat Mar 01, 2014 7:59 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by ANC » Sat Jun 10, 2017 4:37 pm

This is what RCA looked like when I was growing up in the 50s and 60s--color TV, media, music, a world-leading research organization with inventions like CMOS guaranteed to last for 50 years. Even a symphony orchestra with a world-famous conductor from Europe. You can't buy their stock today.

Potential threats to dominance would include Baidu, Alibaba, Tencent and possibly others in China. Other threats could turn out to be regulatory concerns, especially overseas, and a great slowdown in internet growth due to cybersecurity issues.

Dottie57
Posts: 7486
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Dottie57 » Sat Jun 10, 2017 4:45 pm

Avo wrote:
LFKB wrote:I'm not an amateur. I'm an investor by profession
Then why ask for stock-picking advice from amateurs?

Where's the beef?

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by KlangFool » Sat Jun 10, 2017 5:07 pm

LFKB wrote:
KlangFool wrote:OP,

Let's assume that everything you said is correct, why would that make Google/Alphabet a good stock to buy? The answer would be no.

Please note that there is a significant difference between a good stock and a good company. In order to be a good stock, it has to beat expectation by a large margin. Everything that you said is built into the expectation and price accordingly. So, unless there is a surprise, the stock will not move. In this case, the expectation is so high that it is more likely to be surprised on not meeting expectation.

Would Google/Alphabet's stock price outgrow the S&P 500 by more than 10% per year over the next years? If not, why bother taking the risk?

KlangFool
I'm confused by this post. You've outlined a really simple way to think about the world of investing which isn't realistic. My expectation is greater than the market right now. I don't think all the items I mentioned are properly priced in. My expectation for Google has been greater than the market in the past, which is why I first purchased the stock at $300 and it is now around $1,000. So clearly it has beaten expectations in the past and outperformed the SP500. I think it will continue to do so but of course I could be wrong.
LFKB,

<<why I first purchased the stock at $300 and it is now around $1,000. So clearly it has beaten expectations in the past and outperformed the SP500. >>

1) When did you buy the stock at $300?

2) How much more do you think the stock will go up from $1000? And, when?

KlangFool

jjface
Posts: 2616
Joined: Thu Mar 19, 2015 6:18 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by jjface » Sat Jun 10, 2017 5:07 pm

At the end of the day whether a stock will do well or not is anyone's guess. Asking random but intelligent people for their suggestions isn't going to make the stock you choose any more likely to make you lots of money. If you want a gamble you are probably better off picking something more up and coming rather than one of these big boys.
Last edited by jjface on Sat Jun 10, 2017 7:14 pm, edited 1 time in total.

User avatar
badbreath
Posts: 927
Joined: Mon Jul 18, 2016 7:50 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by badbreath » Sat Jun 10, 2017 6:08 pm

I would pick either Enron or Cryptocurrency.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

tylerherman
Posts: 65
Joined: Tue Feb 19, 2013 7:07 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by tylerherman » Sat Jun 10, 2017 6:23 pm

You can make a pretty strong argument to bet against Google, in the next 10 years anyway.

Search ads are slowly dieing and that's Google main market, which they've failed to find an alternative for. Everyone has ad blockers, and voice is becoming even more used for search and even bigger, to purchase products (Amazon Echo). You just don't see ads anymore, and most younger people who have grown up with the internet are blind to them anyway.

Amazon is trying to cut Google out of the online purchase process and they're doing a pretty good job so far. If I had to put my money anywhere, it's on Amazon or Alibaba. They're more diversified, just as into AI and look a lot stronger looking 10, 20, 30 years down the road than Google.

TravelforFun
Posts: 1960
Joined: Tue Dec 04, 2012 11:05 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by TravelforFun » Sat Jun 10, 2017 6:37 pm

Jack FFR1846 wrote:Ford

Ford has been beaten down but has its act together, makes stuff it knows how to make with a worldwide client base and is a stable company. It isn't high flying nor does it think it can do everything and anything.
Not sure I want to buy Ford or GM stock, or car dealerships. I believe the future is more autonomous cars and car sharing, and less car ownership.

tylerherman
Posts: 65
Joined: Tue Feb 19, 2013 7:07 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by tylerherman » Sat Jun 10, 2017 6:47 pm

TravelforFun wrote:
Jack FFR1846 wrote:Ford

Ford has been beaten down but has its act together, makes stuff it knows how to make with a worldwide client base and is a stable company. It isn't high flying nor does it think it can do everything and anything.
Not sure I want to buy Ford or GM stock, or car dealerships. I believe the future is more autonomous cars and car sharing, and less car ownership.
Yeah I don't see car ownership being a thing going forward. That with automonous vehicles and the whole market is going to be turned on its head here pretty soon.

Pretty big gamble to own automotive stock now. The only car company to maybe consider would be Tesla because they own the patients to so many electronic vehicle components and will likely supply other manufacturers with batteries and so on.

User avatar
nisiprius
Advisory Board
Posts: 39721
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nisiprius » Sat Jun 10, 2017 6:59 pm

LFKB wrote:...That's not really true (with maybe a few exceptions) and on average [the S&P companies] are growing slower with much lower margins, far less future growth opportunities and less entrenched market positions in their respective industries.
Right, well, in the 1980s Wang Laboratories, Incorporated was growing at something like 20-30% per year, with an entrenched position in word processing and a newly established, very rapidly growing business in Wang VS IBM-360-compatible minicomputers. According to Riding the Runaway Horse: The Rise and Decline of Wang Laboratories, Dr. Wang kept a chart in his top desk drawer showing the growth of Wang and IBM and the year in which Wang would pass IBM, and "he really believed it." In the mid-1980s anyone would have said that Wang's past growth was exceptional and that their future growth "opportunity" was greater than that of the S&P 500 as a whole.

You really should take a moment to watch this: We're Gunning for IBM. This ad aired during the 1985 Super Bowl. Yep, it wasn't just Apple that did it. Somehow we remember Apple's ads better!

The only reason it seems obvious now that Wang would collapse is that, in 20/20 hindsight, we know that it did collapse.
Last edited by nisiprius on Sat Jun 10, 2017 7:04 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

TomCat96
Posts: 804
Joined: Sun Oct 18, 2015 12:18 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by TomCat96 » Sat Jun 10, 2017 7:02 pm

LFKB wrote:
TomCat96 wrote:
LFKB wrote:I realize this is an index board which is where I keep most of my money, but what individual stocks (not index funds or ETFs) do you like better than Google right now and what do you agree/disagree with from the below? I'm a simple man but the important and quick takeaways for me are

1. Dominant market share and position in growing search/advertising market
2. Google Cloud positioned to challenge AWS and Azure in massive 20%+ growth market (no cannibalization here given they don't sell on premise servers)
3. Fastest artificial intelligence chip speed (operations per second per watt) with full AI stack (i.e. using its own data to train its own algorithms on its own chips)
4. Potentially has the best autonomous vehicle unit in Waymo and the right people and partnerships to execute
5. Likely has more data than any other company
6. YouTube, Gchat, Google Docs, Waze, Fiber, Nest, Google Home, etc

They have a dominant market position in search/online advertising and a dominant or at least compelling market position in virtually all of the biggest and fastest growing markets (autonomous vehicles, cloud, AI/machine learning).

The S&P 500 is trading at around a 26x P/E and GOOG is trading at 28x 2017 P/E, the multiple on the core business would be even lower if you backed out the unprofitable "Other Bets" that are currently burning cash.

So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?

Because the other members of the S&P 500 (PE 26) are captains of their respective industries as well?
That's not really true (with maybe a few exceptions) and on average those companies are growing slower with much lower margins, far less future growth opportunities and less entrenched market positions in their respective industries.
Other members of the S&P are not captains of their respective industries?

The point is none of us are disagreeing with your positions that Google has some good stuff going for them. But there are plenty of actors with plenty of money out there who have had plenty of opportunity to buy Google.

So my question to you is not what Google has, It's why you think the market has not already incorporated such information into the price.

User avatar
nisiprius
Advisory Board
Posts: 39721
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nisiprius » Sat Jun 10, 2017 7:11 pm

TomCat96 wrote:...Other members of the S&P are not captains of their respective industries?...
According to Standard and Poor's that is precisely what the S&P 500 companies are. Not the 500 largest stocks by market cap, but a selected group of 500 "leading companies in leading industries."

Source (click "metholodogy" tab)
The S&P U.S. indices are designed to reflect the U.S. equity markets and, through the markets, the U.S. economy. The S&P 500 focuses on the large-cap sector of the market; however, since it includes a significant portion of the total value of the market, it also represents the market. Companies in the S&P 500 are considered leading companies in leading industries.
Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

McGilicutty
Posts: 209
Joined: Tue Dec 13, 2016 5:24 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by McGilicutty » Sat Jun 10, 2017 7:35 pm

OLED because the stock is en fuego!

z3r0c00l
Posts: 1533
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by z3r0c00l » Sat Jun 10, 2017 7:42 pm

Altria Group inc. A mature company that returns profits to shareholders regularly with a very low PE ratio to boot. :shock: And most of their products are addictive so people can't stop buying.

mortfree
Posts: 1961
Joined: Mon Sep 12, 2016 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by mortfree » Sat Jun 10, 2017 7:49 pm

United Healthcare has been on a roll...

I own google as well - in at $189/share. Then got the split with Goog and Googl.

User avatar
JoMoney
Posts: 8131
Joined: Tue Jul 23, 2013 5:31 am

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by JoMoney » Sat Jun 10, 2017 8:49 pm

Alphabet Inc. is my second largest holding (at least in aggregate with A shares and C shares). Seems like a fine company to me.
They're definitely the leader in some areas, but my impression was that they are an underdog to Amazon in cloud services.
The balance sheet show something like $92 billion in cash equivalents sitting around, and continue to make significant investments in R&D, so I don't think they're going to suddenly disappear into vapor from a technology shift. I expect they'll continue to be one of my top ten holdings for quite awhile.

The stock I own more of is Apple, I think if you asked enough people, in aggregate they'd be holding a higher position in Apple as well :wink:
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
Kenkat
Posts: 5470
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Kenkat » Sat Jun 10, 2017 9:37 pm

LFKB wrote:
Kenkat wrote:My advice would be to start tracking your performance against some benchmark like Growth Index or S&P 500 Index (if you are not) and see how you do over 3-5 years. It is very difficult for the individual investor to pick stocks and beat the market; many here would say it is nearly impossible. Many people I talk to who claim to be beating the market cannot produce any numbers against a benchmark to back it up.
I've done that and have beat the markets. I'm not an amateur. I'm an investor by profession, albeit in private equity. That said, I still keep the majority of my money in index funds.

The last three deals I've worked on at work have generated 4x, 6x and 8x invested capital within 3-6 years.
Are the deals in publicly traded stocks? Or private equity deals? I'm not clear on that. If you are seeing good results, keep doing what you are doing. My experience with picking stocks was that I basically matched the S&P 500. Since I added no value, I stopped.

User avatar
nedsaid
Posts: 12964
Joined: Fri Nov 23, 2012 12:33 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nedsaid » Sat Jun 10, 2017 10:24 pm

I remember Google's meteoric rise and how quickly they came to dominate the internet search business. There were other search engines like Alta Vista, Lycos, Yahoo, Ask, and others I can't think of right now. Bing came along as Microsoft tried to compete in this space. It seemed like Google rose almost overnight and not long after that dominated the search business. How long would it take for something new to knock Google off of its perch? I just checked to see if Alta Vista still existed and saw that it was taken over by Yahoo. Come to think of it, I remember when Yahoo was the dominant player. I did search for Lycos and that still exists.
A fool and his money are good for business.

Nathan Drake
Posts: 477
Joined: Mon Apr 11, 2011 12:28 am

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by Nathan Drake » Sat Jun 10, 2017 10:55 pm

LFKB wrote:
Kenkat wrote:My advice would be to start tracking your performance against some benchmark like Growth Index or S&P 500 Index (if you are not) and see how you do over 3-5 years. It is very difficult for the individual investor to pick stocks and beat the market; many here would say it is nearly impossible. Many people I talk to who claim to be beating the market cannot produce any numbers against a benchmark to back it up.
I've done that and have beat the markets. I'm not an amateur. I'm an investor by profession, albeit in private equity. That said, I still keep the majority of my money in index funds.

The last three deals I've worked on at work have generated 4x, 6x and 8x invested capital within 3-6 years.
If you're so confident about the deals you make in Private Equity generating far greater returns than the market, why not place them in PE instead of individual stocks? Google isn't going to give you 8X invested capital in 3 years.

TravelforFun
Posts: 1960
Joined: Tue Dec 04, 2012 11:05 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by TravelforFun » Sat Jun 10, 2017 11:32 pm

tylerherman wrote:
TravelforFun wrote:
Jack FFR1846 wrote:Ford

Ford has been beaten down but has its act together, makes stuff it knows how to make with a worldwide client base and is a stable company. It isn't high flying nor does it think it can do everything and anything.
Not sure I want to buy Ford or GM stock, or car dealerships. I believe the future is more autonomous cars and car sharing, and less car ownership.
Yeah I don't see car ownership being a thing going forward. That with automonous vehicles and the whole market is going to be turned on its head here pretty soon.

Pretty big gamble to own automotive stock now. The only car company to maybe consider would be Tesla because they own the patients to so many electronic vehicle components and will likely supply other manufacturers with batteries and so on.
I would avoid oil stocks as well. Oil will gradually be replaced by renewable and internal combustion engines by electric.

HAL 9000
Posts: 95
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by HAL 9000 » Sat Jun 10, 2017 11:48 pm

I like FTR....and I'm losing my shirt on it, however I won't sell so I get a good payout while I wait for the turnaround or bankrupcy. GOOG could go up but maybe the FTC breaks it up, at some point its too bloated to be agile or some other black swan. Tech burned me in 2000 so I still avoid it. I thought PALM was going to be big, smartphone big, but they never caught on. Sometimes you're too early to the party.

38,000 ft
Posts: 20
Joined: Thu Jan 07, 2016 10:18 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by 38,000 ft » Sun Jun 11, 2017 12:16 am

LFKB wrote:So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?
Alphabet hasn't shown that they can monetize any new businesses in a material way. So far in terms of their core revenue generating line of business they are essentially a one trick pony.

evestor
Posts: 135
Joined: Sat Feb 21, 2015 5:37 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by evestor » Sun Jun 11, 2017 12:47 am

LFKB wrote:I only own for individual stocks right now - Google, Amazon, Nvidia and Whole Foods (which I just bought at the beginning of the year). I am surprised by your point on growth relative to the 30x PE. The company has been growing at 20% which is far faster than the market with incredible growth opportunities in front of them. The market on average is trading at a similar PE with far less growth on average. So, if you own total stock market, are you convinced there is huge earnings growth ahead for the entire US market?
The street wants more than a track record. They want to be shown a path to the growth. IE a trail in to a new market / massive market expansion that will yield a massive financial win.

Google has not done this to date (IMO). You can believe they will...and you might be right. But the street needs to see more. They need to be given they story line.

Microsoft is a great example of this. Amazing earnings growth under Ballmer, no storyline, low p/e.
At best not better earnings growth under Satya, fantastic storyline, stock is up >2x and PE is now ~30.

User avatar
nisiprius
Advisory Board
Posts: 39721
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nisiprius » Sun Jun 11, 2017 5:44 am

nedsaid wrote:I remember Google's meteoric rise and how quickly they came to dominate the internet search business. There were other search engines like Alta Vista, Lycos, Yahoo, Ask, and others I can't think of right now. Bing came along as Microsoft tried to compete in this space. It seemed like Google rose almost overnight and not long after that dominated the search business. How long would it take for something new to knock Google off of its perch? I just checked to see if Alta Vista still existed and saw that it was taken over by Yahoo. Come to think of it, I remember when Yahoo was the dominant player. I did search for Lycos and that still exists.
I did exactly the same thing. I'm not clear on the status of Lycos stock, however. Can you buy stock in any other search engine company besides Google?

The reason why Google's meteoric rises was product superiority. I don't know how often anything like this ever happens in any product category. Google just sprung full-grown like Athena from the head of Zeus.

In my memory, "internet search" went through three sharply defined truly-quantum-leap, difference-in-kind jumps. With each search tool, I used it for perhaps an hour before adopting it as my sole search tool. There was just no reason to use anything else.

Stage 1: No search engines except perhaps Gopher (remember Gopher?) You were expected to find everything by following links from other things. Human-generated lists of cool links were very important. (In the early days Netscape featured a list of cool sites hand-selected by their "cool team..." and, of course, Yahoo started out as large, systematic, human-curated directory).

Stage 2: The University of Washington web crawler, other "spiders," Lycos, and... oh dear, what was the one that was the one I used most often, which had such a boring name? Infoseek? Yes, Infoseek. The very fact that they didn't capitalize the "s" tells you it was a long time ago.

Stage 3: Altavista. Oh, boy. That was really dramatic. It turned up probably ten times the number of results, or even more. Altavista was far, far more likely to find whatever I was looking for than Infoseek. The biggest problem was that it was indiscriminate, and turned up lots of irrelevant links along with the relevant ones.

Stage 4: Google. Both Altavista and Google spread quickly, cubicle to cubicle, by word-of-mouth, along with whatever ways anyone learned about them. Besides being startling for its incredibly bare search screen--today's is cluttered by comparison--it worked like pure magic. It continued to work like magic for several years until you started hearing the initialism "SEO" and there started to be an arms race between Google and the people trying to distort Google's results (along with Google starting to get very, every slightly evil with respect to including "sponsored" links).

By the way, for perhaps the first week or so of its existence, something about the site made it fairly clear that the creators actually had committed a typo and truly thought that "googol" was spelled "google." I wonder if, at any point, they had to pay anything to the creators of "Barney Google and Snuffy Smith?" With the constant ever-extending backward extensions of copyright, I wonder... is Barney Google that much older than "Steamboat Mickey?" I am just barely old enough to remember Snuffy Smith in the funnies, and it seems to me that it actually said "Barney Google and" in tiny letters over "Snuffy Smith."

Image

Bing has been utterly unable to distinguish itself from Google through performance. For a while I used Bing regularly, both along the lines of "give it a shot" and also wondering if I now had to do duplicate searches to find the really tough stuff. But in fact their lists of search results were astonishingly similar. I sometimes wonder if Google secretly produces private-label versions of its search engine and Bing is one of them, they are so similar. Absolutely the only thing Bing has going for it is Microsoft's ability to have its own product default to using it.

One of the posters here was either pro-Microsoft or anti-anybody-having-total-dominance and used to make a point of saying things like "I Binged on [search term]," but I really don't think I've ever heard anyone say that in real life. The people who use Bing mostly don't even know they are using it. I'm a little surprised Microsoft didn't see the potential problem with the ambiguity, in print, between "binged" meaning "to perform a Bing search" and "binged" mean "had a period of excessive or uncontrolled indulgence, especially in food or drink."

The one thing I do envy my wife's Windows 10 system for is the Bing Picture of the Day. Oh, boy, is that ever good. I've made some desultory efforts to view the pictures myself on my Mac OS X system but it ain't the same. I'm quite surprised Google hasn't offered a Picture of the Day and some application-ish way to make it something to look at whenever you aren't looking at something else.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
nedsaid
Posts: 12964
Joined: Fri Nov 23, 2012 12:33 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nedsaid » Sun Jun 11, 2017 9:37 am

I mostly use Bing myself. I don't know, it just seemed that all of this was getting too intrusive and I read an article that Bing purges its records after a certain time period. To me, investing in a search engine is like owning shares in the National Security Agency, an entity that scoops up everything that can be known about people. But I noticed that Microsoft seems to be picking up Google's bad habits, it seems that your user agreement gives Microsoft the right to spy on you and then use the information as it sees fit. Government agencies aren't much better, they put a lot of stuff on the internet and even worse their data bases seem extraordinarily vulnerable to hacking. Privacy pretty much does not exist.
A fool and his money are good for business.

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sun Jun 11, 2017 9:51 am

Nathan Drake wrote:
LFKB wrote:
Kenkat wrote:My advice would be to start tracking your performance against some benchmark like Growth Index or S&P 500 Index (if you are not) and see how you do over 3-5 years. It is very difficult for the individual investor to pick stocks and beat the market; many here would say it is nearly impossible. Many people I talk to who claim to be beating the market cannot produce any numbers against a benchmark to back it up.
I've done that and have beat the markets. I'm not an amateur. I'm an investor by profession, albeit in private equity. That said, I still keep the majority of my money in index funds.

The last three deals I've worked on at work have generated 4x, 6x and 8x invested capital within 3-6 years.
If you're so confident about the deals you make in Private Equity generating far greater returns than the market, why not place them in PE instead of individual stocks? Google isn't going to give you 8X invested capital in 3 years.
I do put my money in PE deals. Not all of it of course, but some of it.

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sun Jun 11, 2017 9:56 am

38,000 ft wrote:
LFKB wrote:So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?
Alphabet hasn't shown that they can monetize any new businesses in a material way. So far in terms of their core revenue generating line of business they are essentially a one trick pony.
That's not true. The cloud business and YouTube generate significant earnings. Also, some of the businesses they're in like autonomous vehicles haven't been monitized by anyone yet, so it's not like they're behind.

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sun Jun 11, 2017 9:59 am

Avo wrote:
LFKB wrote:I'm not an amateur. I'm an investor by profession
Then why ask for stock-picking advice from amateurs?
Just soliciting other opinions. Is there something wrong with that?

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sun Jun 11, 2017 10:06 am

KlangFool wrote:
LFKB wrote:
KlangFool wrote:OP,

Let's assume that everything you said is correct, why would that make Google/Alphabet a good stock to buy? The answer would be no.

Please note that there is a significant difference between a good stock and a good company. In order to be a good stock, it has to beat expectation by a large margin. Everything that you said is built into the expectation and price accordingly. So, unless there is a surprise, the stock will not move. In this case, the expectation is so high that it is more likely to be surprised on not meeting expectation.

Would Google/Alphabet's stock price outgrow the S&P 500 by more than 10% per year over the next years? If not, why bother taking the risk?

KlangFool
I'm confused by this post. You've outlined a really simple way to think about the world of investing which isn't realistic. My expectation is greater than the market right now. I don't think all the items I mentioned are properly priced in. My expectation for Google has been greater than the market in the past, which is why I first purchased the stock at $300 and it is now around $1,000. So clearly it has beaten expectations in the past and outperformed the SP500. I think it will continue to do so but of course I could be wrong.
LFKB,

<<why I first purchased the stock at $300 and it is now around $1,000. So clearly it has beaten expectations in the past and outperformed the SP500. >>

1) When did you buy the stock at $300?

2) How much more do you think the stock will go up from $1000? And, when?

KlangFool
I believe I purchased it about 5 years ago at $300.

I have no idea how and when the stock will go up. If I had to guess, my expectation is that it will double in the next 5 years based on my anticipated earnings growth. My point is that by comparison it seems like a better investment than the overall market right now.

Topic Author
LFKB
Posts: 593
Joined: Mon Dec 24, 2012 7:06 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by LFKB » Sun Jun 11, 2017 10:16 am

TomCat96 wrote:
LFKB wrote:
TomCat96 wrote:
LFKB wrote:I realize this is an index board which is where I keep most of my money, but what individual stocks (not index funds or ETFs) do you like better than Google right now and what do you agree/disagree with from the below? I'm a simple man but the important and quick takeaways for me are

1. Dominant market share and position in growing search/advertising market
2. Google Cloud positioned to challenge AWS and Azure in massive 20%+ growth market (no cannibalization here given they don't sell on premise servers)
3. Fastest artificial intelligence chip speed (operations per second per watt) with full AI stack (i.e. using its own data to train its own algorithms on its own chips)
4. Potentially has the best autonomous vehicle unit in Waymo and the right people and partnerships to execute
5. Likely has more data than any other company
6. YouTube, Gchat, Google Docs, Waze, Fiber, Nest, Google Home, etc

They have a dominant market position in search/online advertising and a dominant or at least compelling market position in virtually all of the biggest and fastest growing markets (autonomous vehicles, cloud, AI/machine learning).

The S&P 500 is trading at around a 26x P/E and GOOG is trading at 28x 2017 P/E, the multiple on the core business would be even lower if you backed out the unprofitable "Other Bets" that are currently burning cash.

So why does a company with a dominant market position in a huge and growing search market with sustained 20% revenue growth and 40% EBITDA margins and massive growth opportunities in future technologies trade at or around the market multiple? It still seems very reasonably priced even at these levels given all of the long-term potential out there and given the current interest rate environment.

Thoughts?

Because the other members of the S&P 500 (PE 26) are captains of their respective industries as well?
That's not really true (with maybe a few exceptions) and on average those companies are growing slower with much lower margins, far less future growth opportunities and less entrenched market positions in their respective industries.
Other members of the S&P are not captains of their respective industries?

The point is none of us are disagreeing with your positions that Google has some good stuff going for them. But there are plenty of actors with plenty of money out there who have had plenty of opportunity to buy Google.

So my question to you is not what Google has, It's why you think the market has not already incorporated such information into the price.
Correct. There aren't 500 companies that are "captains of their respective industries" in the way Google is. There are a handful and those companies are included in the S&P 500. There are many industries that don't have a clear leader in the way Google is.

The reason I think it is not appropriately valued is that at least relative to the overall market, it has a significantly better financial profile and has the opportunity to have outsized growth from several of the areas I mentioned in my original post. Often times, investors have trouble appropriately valuing businesses that play in several different areas, particularly when some of them are currently unprofitable. If you valued each Alphabet business individually I believe that the sum of the parts would be greater than the current market value. It'll take time for profits to come through on some of their businesses but I expect the market to more appropriately value the stock when they do.

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by KlangFool » Sun Jun 11, 2017 10:24 am

LFKB wrote:
I believe I purchased it about 5 years ago at $300.

I have no idea how and when the stock will go up. If I had to guess, my expectation is that it will double in the next 5 years based on my anticipated earnings growth. My point is that by comparison it seems like a better investment than the overall market right now.
LFKB,

As per rule of 72, 72/5 ~ 14. In order to double in 5 years, the CAGR need to be 14%.

<< My point is that by comparison it seems like a better investment than the overall market right now.>>

Let's assume that you are correct, it doubles in 5 years. The CAGR is only 14%. Is it good enough for you to take the risk? What is the annual return rate of your main index portfolio? What is your AA?

When and under what condition will you sell?

I have some play money to gamble on the individual stock. I am looking for 10X to 30X return. Google is not good enough. And, I sell half of my holding when it triples (3X).

KlangFool

User avatar
nedsaid
Posts: 12964
Joined: Fri Nov 23, 2012 12:33 pm

Re: Tell me a stock you like better than Google/Alphabet Right Now and Why

Post by nedsaid » Sun Jun 11, 2017 10:33 am

LFKB, my take on all of this is that Google/Alphabet would be a good stock to own. Just as I would advise somebody buying individual stocks: buy at a reasonable price, develop a narrative for owning the stock, and monitor the future prospects for the company.

In your initial well written post, I think you did the three steps I mentioned quite well. Seeing that you own the stock, my advice would be that it is something that you would want to own as long as the future prospects for the company looks bright.

The thing is, growth rates are a notoriously difficult metric. First of all, the optimistic projections of earnings growth by stock analysts often prove to be too optimistic. Secondly, it isn't always easy to see how much of the earnings growth is truly organic and how much is from acquisitions. If you remember back to Tyco, they were notorious for this. Worldcomm also comes to mind. The CEOs of both companies went to jail. These are extreme examples but it shows that acquisitions of other businesses can exaggerate earnings growth. During the 1990's GE and Coke did a lot of financial engineering to make their earnings growth to look both higher and steadier than they really were. Third, companies can do sandbagging to actual be too conservative on earnings and then reverse prior reserves to mask an earnings dip. As I recall, Lucent did this once. And yes, Lucent's woes were well known as the ground under the telecomm equipment industry shifted.

Technology is a particularly volatile industry. Things can change faster than anyone would ever imagine. Because a lot of the value of such companies are based on what I call the "cool factor" and other such intangibles, they are a more challenging to value. The cash flows of such companies can also be more volatile than the broad stock market.

Right now, Google is the epitome of cool. Apple is still there but probably not as cool as when Steve Jobs was still living. Sort of like Frank Sinatra and Dean Martin being swamped by the growing popularity of rock music in the 1960's. The ground shifted under the music industry rather quickly. It is amazing how much of the music industry and probably the economy as a whole is determined by the whims of young teen and pre-teen girls. When Justin Bieber is no longer cute and the cool factor gone, his music career will take a huge hit. The high tech industry is really subject to the "cool factor" and the teen age girl phenomenon that I mentioned, as kids have a big effect on the buying patterns of households.

The concern I have with high tech is that things can change so quickly. A company can be toast two or three years before the management fully realizes it. Again, back to my analogies. In 1965, Sinatra was old fogey and old school, pretty much your parent's music. The Beatles were what was cool judging from the screaming teen age girls. In let's say 2005, the Apple Macintosh was cool, the Microsoft/PC stuff is what your parents used. In the late 1990's, the Palm Pilot was the must have device, today you wouldn't be caught dead with it. Today, if you don't have a smart phone, you are just a dinosaur stuck in the tar pits. Samsung Galaxy is still cool, I Phones are still acceptable, Blackberry phones are uncool.

I think by now you have gotten my point. Watch what the teens and young twenty somethings are doing. When they abandon Google searches and YouTube, it might be time to sell. I see rumblings of discontent with YouTube. My off the top of the head guess is that Google is in the beginning stages of losing its cool. Too establishment. Google might be the equivalent someday of a stack of old Frank Sinatra records.
Last edited by nedsaid on Sun Jun 11, 2017 2:20 pm, edited 1 time in total.
A fool and his money are good for business.

Post Reply