We recently compiled a list of the 8 Best Communication Stocks To Buy According to Analysts. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other communication stocks.
The communication sector seems to be performing well through this year as the sector ETFs are slightly outperforming the broader market. While XLC and VOX are up over 25% year-to-date as of October 17, the S&P has gained slightly over 23%. Chris Grisanti, chief market strategist at MAI Capital Management also sees significant opportunities in the tech and communications sector despite him being a value investor.
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He told CNBC on October 17 that the economy appears to be in very strong shape, with positive earnings reports from financial companies. Economic indicators are looking solid, and the upcoming election could have a positive effect regardless of the outcome. Moving forward, the strongest earnings are likely to come from technology and communication stocks, despite them typically being outside value-focused investments.
Adapting to Consumer Behavior in Media and Telecom
According to PwC’s Media and Telecommunications: US Deals 2024 Midyear Outlook, media and telecommunications deal activity remained subdued due to high interest rates and uncertain regulations, with deal volumes declining despite a slight rebound in values in 1H 2024. Consumer preferences are shifting towards short-form, user-generated content platforms like TikTok, where influencers play a significant role in attracting brand partnerships. Streaming platforms are evolving through bundling and partnerships to manage rising content costs while improving subscriber retention.
AI, especially generative AI, is increasingly influencing content creation and ad tech, which are making campaigns more efficient and optimizing ad spending. Private equity investors are showing renewed interest, especially in consumer-focused deals, although regulatory obstacles and privacy concerns continue to complicate the market. As companies navigate these challenges, maintaining a strong consumer value proposition is crucial to retaining subscribers and driving growth.
Our Methodology
For this article, we identified over 40 communications services stocks with a market cap above $10 billion through the Finviz stock screener. Next, we narrowed our list to 8 stocks most favored by analysts. We listed the stocks in ascending order of their average price target upside as of October 17. We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s Q2 database of 912 elite hedge funds.
Why are we interested in 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).
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Average Price Target Upside: 25.82%
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL), the parent company of Google, oversees a range of subsidiaries across multiple sectors, including health, venture capital, and autonomous driving, with Google remaining its largest and most recognizable entity. The company’s main focus is to organize global information and make it accessible through services like Google Search, YouTube, Google Assistant, and Google Cloud.
AI plays a key role in its offerings, with advancements such as the Gemini model introduced in 2023, which improve capabilities across various data types. Recently, in a memo, CEO Sundar Pichai announced that the Gemini app team will join Google DeepMind to work more closely on new models and improve their deployment. The Gemini app is how consumers access the latest Gemini models. Also, the assistant teams working on devices and home experiences will move to Platforms & Devices, bringing together efforts to improve AI-powered home products and user experience.
Alphabet (NASDAQ:GOOGL) is currently facing heightened antitrust scrutiny in the U.S., with the Justice Department considering the possibility of forcing the company to spin off certain services to address concerns about monopolistic practices in online search.
Despite that, Mizuho Securities analyst James Lee maintained a Buy rating on the company stock due to its strong fundamentals and optimistic outlook despite regulatory challenges. He acknowledged the Department of Justice’s proposed changes to Google’s search operations but believes these will not drastically weaken Google’s market position. Lee expects Alphabet (NASDAQ:GOOGL) to manage these regulatory adjustments well, with minimal impact on its overall operations, including search results and advertising.
Patient Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
Overall GOOGL ranks 7th on our list of the best communication stocks to buy according to analysts. While we acknowledge the potential of GOOGL 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 GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.