We recently compiled a list of the 12 Best Forever Stocks To Buy Now. In this article, we are going to take a look at where Alphabet Inc (NASDAQ:GOOG) stands against the other forever stocks to buy now.
Investment opportunities are increasingly cropping up as volatility in the equity markets edge higher in response to changes in the investment environment. Investors have had to tweak their portfolios as global central banks tweak their monetary policies in response to slowing inflationary pressure.
Uncertainty over the upcoming US election is another headwind that is fuelling volatility in the markets. Geopolitical tensions, especially in the Middle East, have also weighed significantly, forcing some investors to resort to defensive investment plays.
READ ALSO: 12 Best Long-Term Stocks to Buy According To Warren Buffett and 10 Best Debt-Free Penny Stocks to Buy Now.
Nevertheless, the array of disappointing economic data led by weakness in the labor market has raised serious doubts about whether the US economy is overheating amid the high interest rates. With the economy creating partly 142,000 jobs and the unemployment rate at 4.25% in August, serious doubts were cast about the resilience of the US economy.
Investors need help understanding the state of the US economy, which had decelerated from the rapid expansion it experienced right after the pandemic when companies rushed to reopen and recruit new employees.
Reducing inflation has provided some relief for families struggling with rising costs. However, the job market has also slowed down, with fewer people being hired, wages increasing at a slower pace, and the duration of unemployment increasing as it becomes harder to secure employment.
A survey carried out by CNBC indicates that the probability of the US economy experiencing a soft landing stands at 53% as the US Federal Reserve starts its interest rate cut cycle. According to Michael Englund of Action Economics, the US economy is growing much faster than expected, even as it stares at economic risks on the horizon.
However, there is also a probability that the economy will plunge into recession at 36%, owing to the negative effects of the high interest rates. According to Diane Swonk, chief economist at KPMG US, Federal Reserve chair Jerome Power’s legacy highly depends on him engineering a soft landing after keeping interest rates high for too long.
Soucre: pexels
Analysts and economists share mixed opinions on whether the economy needs 25 or 50 basis points to start with to cure the effects of the high interest rate environment. The argument for beginning with a smaller cut is based on the assumption that the economy is fundamentally sound, as current and former FED officials argue.
They argue that starting with a 50-basis-point reduction could signal a deeper concern over the economy. It could prompt investors to expect quicker rate reductions, which could spark market booms that complicate efforts to combat inflation.
On the other hand, a bigger reduction might cause investors to believe wrongly that the Fed intends to lower rates by the same amount at its meetings in November and December. This could create an expectation that the Fed would move swiftly towards a neutral interest rate target, which is meant to neither stimulate nor decelerate economic growth, according to James Bullard, who served as the president of the St. Louis Fed from 2008 to 2023.
Amid the monetary policy uncertainty and economic growth slowdown concerns, the US equity market has remained resilient and supported by solid financial results. The S&P 500 rallying by double percentage points affirms growing investor sentiment.
The artificial intelligence frenzy has been one of the main catalysts driving sentiments in the equity markets. Some stocks with exposure to AI have rallied by more than 50%. On the other hand, the FED cutting interest rates is expected to provide the much-needed fuel to sustain the upward momentum in the equity markets.
The best forever stocks to buy now are companies depicting solid revenue and earnings growth with low debt levels poised to generate long-term shareholder value. Additionally, they boast a competitive edge in their respective industries by investing billions of dollars in research and development. In addition, the companies are increasingly spearheading industrial trends and technological advancements such as artificial intelligence.
Our Methodology
The best forever stocks offer stability and growth, making them ideal for long-term investors. We analyzed the iShares MSCI USA Quality Factor ETF, focusing on high-quality US stocks with strong competitive advantages. We ranked the top 10 based on market cap and hedge fund holdings.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Alphabet Inc (NASDAQ:GOOG)
Number of Hedge Funds Holding Stakes as of Q2: 165
Market Cap as of September 18, 2024: $1.97 Trillion
Alphabet Inc. (NASDAQ:GOOG) is a tech giant that operates through Google Services, Google Cloud, and Other Bets segments. It provides products and services, including ads, Android, Chrome, Search, and YouTube.
Alphabet is one of the best forever stocks to buy now as its cloud business is in a phase of robust growth, given that the cloud market is nascent. The enhancement of cloud solutions with AI is increasingly strengthening their competitive edge. Cloud revenues in the second quarter rose to $10.3 billion from $8 billion a year ago.
The company dominates the search world and has been integrating artificial intelligence features to enhance user experience. Likewise, the search business remains the company’s core, generating billions of dollars in advertising revenues.
During the second quarter, total revenues were up 14% to $84.74 billion as YouTube earned $8.7 billion from advertising alone, marking a 13% increase compared to the same period last year. Meanwhile, Google Cloud experienced a significant rise in earnings, growing by 29% to surpass $10 billion in the same timeframe, illustrating the company’s rapid expansion.
Alphabet Inc. (NASDAQ:GOOG) holds more cash than debt on its balance sheet, which may provide a degree of financial stability. In the second quarter, it generated $23.6 billion in net income and $18.37 million as of last year’s same quarter.
Backed by a solid balance sheet with significant free cash flow, Alphabet has already started returning value to shareholders through dividend payments. The company has already confirmed a $0.20 dividend with a yield of 0.50%. Alphabet Inc. (NASDAQ:GOOG) looks incredibly cheap while trading at a price-to-earnings multiple of 18.
A total of 165 hedge funds were long Alphabet Inc. (NASDAQ:GOOG) in the second quarter.
Baron Fifth Avenue Growth Fund stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter:
“We also added to Alphabet Inc. (NASDAQ:GOOG). The company reported solid financial results with first quarter revenue growth of 15% year-over-year, driven by 14% growth in search, 21% growth in YouTube, and 28% growth in cloud (which accelerated from 26% growth in the fourth quarter). The company has also increased its cost discipline efforts, which drove operating margins to 31.6% (compared to 25% in the first quarter of 2023). With regards to GenAI, while we are cognizant of the potential risks to the dominance of search, we believe that on the range of outcomes, Alphabet remains well positioned through its massive user distribution (9 products with over 1 billion users each), long-standing AI research labs (DeepMind and Google Brain), top AI talent, a solid cloud computing division in Google Cloud, and deep pockets for investing in AI. During the quarter, Alphabet also held its annual I/O conference, where it provided an update on its efforts in AI including: Gemini is now used by 1.5 million developers; model quality is expanding rapidly (e.g., context window is now 2 million tokens of length); the new genomics model, Alphafold 3 can predict structures of molecules and potentially accelerate drug discovery; new TPU6 AI chips has shown a 4.7 times improvement in compute performance compared to the prior generation; and Gemini for workspace is showing early data on a 30% increase in user productivity. Alphabet also has real value in assets such as Waymo, which are not factored into valuation today (and are potentially included at a negative valuation as they currently generate losses, hurting EPS). We continue to believe that the current valuation of Alphabet presents an attractive risk/reward for long-term owners of the business and have therefore increased our position.”
Overall GOOG ranks 5th on our list of the best undervalued cyclical stocks to buy. While we acknowledge the potential of GOOG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOOG, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.