Alphabet's Stellar Results Put 4 Mutual Funds In Play

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Includes: CTCAX, GOOG, GOOGL, MTCAX, PGTAX, ROGSX
by: Zacks Funds

The latest batch of tech earnings has made one thing amply clear - companies with a focus on mobile devices and cloud are delivering big profits. Alphabet Inc. (NASDAQ:GOOGL) has flourished on both these trends. Its stellar quarterly results were mostly driven by consumer's rapid shift to mobile devices. Alphabet showed that revenues from mobile advertisements are still a fast growing and profitable business.

Hence, it will be prudent to invest in technology mutual funds with a major holding in this search giant. Needless to say, Facebook, Inc. (NASDAQ:FB) also surged on mobile revenues, while the cloud business boosted Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).

Alphabet Surges on Mobile Ads

Alphabet notched up second quarter revenues of $21.5 billion, gaining 21% year over year. Other Bets, made up of Alphabet's so-called moonshot projects like Nest, Verily and its super-fast Internet service Fiber, posted revenues of $184 million, more than double the $74 million posted during the same period last year. The company also reported net income of $4.88 billion, more than $3.93 billion a year earlier.

As companies bought more of its mobile ads and users increased their clicks on those ads, Alphabet was able to post a blockbuster second quarter performance. Improvement in mobile websites and Alphabet's move to offer better mobile-ad formats are luring advertisers to increase advertisement of phones. Alphabet's effort to push its advertisers and users toward mobile devices from its long relied upon personal computers was also helped by its Android smartphone software.

According to Google Chief Executive Officer Sundar Pichai, robust gains in its red-hot video market also propelled the company's growth. Shares of the tech-behemoth gained 3.3% on Friday (read: Alphabet Earnings And Revenues Beat On Solid Execution).

Mobile & Cloud Drive Tech Profits Up

Mobile ad revenues were also instrumental in driving Facebook's convincing earnings beat. Mobile ad revenues in the second quarter were $5.2 billion, up 81% year over year (YoY), contributing 84% to total ad revenues. Largely, Facebook's main money stream, ad revenue, hit $6.24 billion, surging 63% YoY. The company's adjusted earnings per share of 76 cents beat the Zacks Consensus Estimate of 62 cents.

Facebook's move to consistently expand its user growth was also one of its biggest catalysts. Monthly active users (MAUs) hit 1.71 billion during the quarter, up 15% YoY. The company said that monthly users on mobile increased 20% YoY (read: Facebook (FB) Q2 Earnings Top Estimates Driven by Mobile Ads).

Meanwhile, Amazon and Microsoft also beat estimates lifted by their moves to host other companies' data on their computer services, also known as cloud. Amazon's cloud business soared 58% to $2.89 billion in the second quarter compared with the same period last year. This helped Amazon to post a profit of $857 million, almost double the company's previous high.

Similarly, Microsoft's Azure cloud computing business grew 6.6% to $6.71 billion in the said quarter in comparison to last year. Alphabet too is aggressively pitching its cloud services, which increased 33% to $2.17 billion in the second quarter compared with the same period last year. The current quarter's growth easily outpaced previous quarters. Alphabet recently hired Diane Greene, a well-known Silicon Valley entrepreneur, to run the division.

4 Mutual Funds to Ride Alphabet's Impressive Earnings

Alphabet has focused more on mobile devices to drive its financial growth and also expects machine learning to fuel its business in the next 10 years. And as users spend more time on their smartphones and advertisers are using more money to reach them there, Alphabet will continue to enjoy its growth trends. Add to this its focus on the cloud computing business, the next generation of business technology, and we all know why investing in technology mutual funds having a significant exposure to Alphabet will be a judicious choice.

Such funds also have considerable exposure to companies like Facebook, Amazon and Microsoft to a name a few that have reported upbeat earnings results, banking on mobile ad revenues and cloud computing. But, why choose mutual funds over stocks? This is because funds reduce transaction costs for investors. Funds also diversify their portfolio without the numerous commission charges that stocks need to bear.

We have chosen four such mutual funds having Alphabet as the top holding, as per the last filling. These funds also possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 3-year and 5-year annualized returns, minimum initial investments within $5000 and carry low expense ratios.

Columbia Global Technology Growth Fund A (MUTF:CTCAX) invests a large portion of its assets in equity securities of technology companies that may benefit from technological advancements or developments. CTCAX's 3-year and 5-year annualized returns are 18.2% and 14.6%, respectively. CTCAX carries a Zacks Mutual Fund Rank #2. Annual expense ratio of 1.4% is lower than the category average of 1.51%.

MFS Technology Fund A (MUTF:MTCAX) invests a major portion of its assets in securities of issuers engaged in using or developing products or services that will benefit significantly from technological advances and improvements. MTCAX's 3-year and 5-year annualized returns are 15% and 14.4%, respectively. MTCAX carries a Zacks Mutual Fund Rank #1. Annual expense ratio of 1.27% is lower than the category average of 1.51%.

Putnam Global Technology Fund A (MUTF:PGTAX) invests the majority of its assets in securities of companies in the technology industries. PGTAX's 3-year and 5-year annualized returns are 16.9% and 11.8%, respectively. PGTAX carries a Zacks Mutual Fund Rank #1. Annual expense ratio of 1.26% is lower than the category average of 1.51%.

Red Oak Technology Select Fund (MUTF:ROGSX) invests a large portion of its assets in equity securities of companies operating in the technology sector. ROGSX's 3-year and 5-year annualized returns are 14.5% and 14.8%, respectively. ROGSX carries a Zacks Mutual Fund Rank #2. Annual expense ratio of 1.11% is lower than the category average of 1.51%.

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