Alphabet Inc. (NASDAQ:GOOG) State-level investigations and federal probes pose as stumbling blocks
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock has broken out. Before a 1% decline on Monday, Alphabet stock was trading at an all-time high. At this point, GOOG seems to have a clear path toward becoming the fourth stock to reach a $1 trillion market capitalization.
In this market, I’d bet on the stock hitting that milestone, with Alphabet following Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) in the process. From there, however, the case becomes a bit trickier.
Alphabet stock admittedly looks cheap on an earnings basis, particularly backing out its cash hoard. Its growth continues to impress, with third-quarter earnings much stronger than GAAP accounting suggests.
Fundamentally, the case for a sustainable $1 trillion valuation seems easy to make, particularly in a U.S. stock market trading at all-time highs.
But there are risks. Admittedly, I’ve been too bearish on Google stock in the past, and those risks may be manageable. Still, GOOG has some potential potholes to hit on its way to $1 trillion — and even after that mark — assuming it gets there.
Alphabet Stock Breaks Out
In retrospect, the huge gains in GOOG and GOOGL stock seem quite logical. In a low interest rate environment, investors still are looking to equities for returns. But there’s been obvious concern about valuations for growth stocks lately. Seemingly all of 2019’s high-profile initial public offerings have pulled back. The list of the worst-performing large-cap names of the past three months is full of stocks with big revenue growth but barely profitable or unprofitable businesses. That list includes Pinterest (NYSE:PINS), Twitter (NYSE:TWTR), Slack (NYSE:WORK) and Uber (NYSE:UBER), to name a few.
So investors fleeing 10-year Treasurys that yield less than 2% are looking for safety. They’ve looked to Big Tech. AAPL stock has posted a historic run. MSFT stock continues to gain. And Alphabet stock, too, has rallied.
Admittedly, market factors alone aren’t driving the gains. Second-quarter earnings impressed, as I wrote at the time. Third-quarter earnings looked disappointing from a headline standpoint. But Alphabet’s earnings are difficult to decipher, and the miss relative to Wall Street consensus was driven mostly by mark-to-market accounting of the company’s stakes in other publicly traded companies.
That accounting aside, the quarter was strong. Operating income in the core Google business increased 13% year-over-year. Traffic acquisition costs for years had been rising faster than revenue, but that concerning trend has reversed. Long-held worries about Google’s ability to manage the shift away from desktops to mobile have been assuaged.
And even at all-time highs, GOOG stock remains reasonably cheap. A forward price-to-earnings ratio just over 24 doesn’t seem that cheap in context.
But Alphabet has roughly $140 per share in net cash. It’s losing close to $1 billion per quarter pre-tax on its “Other Bets” businesses, which include self-driving car startup Waymo. Back out the cash and the losses, and the forward price-to-earnings multiple is in the range of 20.
For double-digit earnings growth, that’s probably an attractive multiple. It’s certainly cheap enough for investors to keep talking themselves into Google stock, just as they have AAPL and MSFT.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 1,247.64.
The projected upper bound is: 1,356.33.
The projected lower bound is: 1,278.97.
The projected closing price is: 1,317.65.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 30 white candles and 20 black candles for a net of 10 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 72.1646. This is not an overbought or oversold reading. The last signal was a sell 0 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 63.44. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 1 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 85. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 25 period(s) ago.
Rex Takasugi – TD Profile
ALPHABET INC C closed down -5.240 at 1,315.460. Volume was 10% below average (neutral) and Bollinger Bands were 8% narrower than normal.
Open High Low Close Volume___
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1,309.05 1,250.81 1,181.36
Volatility: 17 20 30
Volume: 1,309,336 1,326,430 1,421,374
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
ALPHABET INC C is currently 11.4% above its 200-period moving average and is in an upward trend. Volatility is Our volume indicators reflect volume flowing into and out of GOOG.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on GOOG.O and have had this outlook for the last 24 periods.
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