Alphabet: Why The New 'King Of Cash' Is A Must-Have Heading Into The Next Decade

Dec. 27, 2019 2:43 AM ETAlphabet Inc. (GOOG), GOOGLAAPL, AMZN, META, MSFT88 Comments
Güner Soysal profile picture
Güner Soysal
2.89K Followers

Summary

  • After holding the title for more than a decade, Apple had been dethroned as the king of cash by, among others, Google parent company Alphabet.
  • Alphabet held about $121 billion in cash in Q3 2019. The current cash position exceeds 10% of its market capitalization in addition to a solidly growing FCF.
  • These resources, if used effectively, could contribute to an outperformance in the coming year(s).
  • Appointed as the new Alphabet CEO, I expect Sundar Pichai using buybacks, among others, as an important instrument in order to push stock performance and increase shareholder value.
  • Nevertheless, there are also some weaknesses and threats investors should be aware by investing and for calculating the fair value.

1. Introduction

In my recent Qualcomm (QCOM) article on Seeking Alpha with the title "Why The Success Story Just Begins," one of the Seeking Alpha members asked me to write more about technology stocks.

On the one hand, I decided to fulfill the wish of the aforementioned Seeking Alpha Member with this article about Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). On the other hand - while Alphabet is not my (from an emotional point of view) favorite (technology) stock - I would like to demonstrate why it is a must-have stock for investors at the beginning of the next decade.

As there are a couple of articles in general and on Seeking Alpha justifying an investment in Alphabet, I would like to focus in this article only on what I consider to be the core arguments.

Before discussing the core arguments for an investment in Alphabet, let's take a look at the stock performance against the S&P 500 and Nasdaq 100 indices in 2019.

As the following chart illustrates, Alphabet shares slightly outperformed the S&P 500 (SPY) (28.48%) in 2019 with a year-to-date performance of 28.89%, whereas the shares underperformed the Nasdaq 100 technology index (QQQ) (37.22%) by a considerable amount.

(Alphabet's year-to-date stock performance vs. SPY and QQQ. Source: YCharts)

Even though I am not a fan (anymore) of comparisons between the performance of different stocks, in the present case it may be helpful to get an overview of the performance of the largest and most important US technology stocks. According to the chart below, only Amazon (AMZN) has delivered a "worse" performance than Alphabet with a year-to-date gain of 19.24 percent (see following chart).

(Alphabet's year-to-date stock performance in peer group comparison as of 24 December 2019. Source: YCharts)

Looking at the performance over the last three years, Alphabet even comes off

This article was written by

Güner Soysal profile picture
2.89K Followers
Real Financial Dynamics - Investing In Growth In Every Market Phase. Banker, Investor, Investment Advisor, Wealth Manager, Finance Blogger from Germany. Website | Instagram | LinkedIn | Güner Soysal

Disclosure: I am/we are long GOOG, GOOGL, FB, AMZN, MSFT, AAPL, BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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