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GOOGL Stock Safest Buy as FAANG Crashes


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Alphabet (NASDAQ:GOOGL) the stock doesn’t have a great year. Shares are down 23% since the start of the year. However, it could be much worse.

Some of the other FAANG stocks completely imploded. netflix (NASDAQ:NFLX), for example, is down 70% so far in 2022 amid streaming industry woes.

There is a lot of uncertainty in FAANG stocks in general. Apple (NASDAQ:AAPL), for example, is facing chaos in its supply chain due to the concentration of its manufacturing capacity in China.

As short-term traders and investors dump FAANG stocks, are there any still worth owning? Yes, Alphabet is always worth the risk.

A closer look at a GOOGL stock

Analysts now estimate that Alphabet will generate $112.25 per share in earnings in 2022. That puts GOOGL stock at just 19 times expected earnings for this year.

They also see those earnings per share reaching $133.35 in 2023 and $152.09 in 2024. This would put Alphabet at just 16 times 2023 earnings and 14 times projected 2024 earnings.

It’s just amazing. It’s one thing for a slow growing company to sell at a P/E ratio below 20, but that’s Alphabet we’re talking about. Alphabet has grown its earnings per share by 22% annually over the past decade.

Similarly, it has also increased its free cash flow per share by 20% per year. These are the kinds of numbers that should make investors salivate. Instead, GOOGL stock headed for a discount to the broader S&P 500.

Morningstar sees huge benefits

Morningstar Senior Equity Analyst Ali Mogharabi has a fair value target of $3,600 for GOOGL stock today.

This means that Alphabet is, if Mogharabi is correct, undervalued by 39%. That’s a huge margin of safety for a company as large and stable as this one.

Mogharabi believes Alphabet should be trading at an enterprise value to EBITDA multiple of 20. Analysts use EV/EBITDA as a quick indicator of a company’s valuation non-cash versus its ability to generate cash flow on an annual basis.

Since 2016, GOOGL stock has historically traded in a range between 16 and 20 times EV/EBITDA. He is currently at 13 now. While Mogharabi’s price target is at the high end of this range, even going back just 16 times would put GOOGL stock at around $2,750 from the current share price of $2,100.

Alphabet is a resilient company

It is well known that Alphabet’s cash cow is in its research business. The Google search engine remains a one-of-a-kind asset with almost no competition in most parts of the world. The company’s incredible ability to integrate search into other forms, such as the Android platform, is legendary.

But Alphabet is not limited to primary research. The YouTube business has become an enviable cash flow machine in recent years. Despite the dramatic increase in advertising costs, the number of viewers remains off the charts.

And then there is everything else.

Google’s cloud business continues to grow at a rapid pace. Profitability has been an issue for the cloud division so far, but Google will likely find out sooner or later.

Beyond that is the range of moonshots from Alphabet and other companies. Whether it’s quantum computing, self-driving, artificial intelligence, or any of the countless other irons in the fire, it looks like some of them will pay off in time. .

Conclusion of GOOGL Stock

You can advocate for some of the other FAANG actions here. Amazon.co.uk (NASDAQ:AMZN) could experience a serious rebound if the economy does not slow as sharply as expected. Metaplatforms (NASDAQ:META) looks like deep value here if its ad sales don’t see other issues.

Overall, though, if you only want one FAANG stock that can withstand this market drop, Alphabet is the choice. The combination of the company’s massive cash flow from the research core business and its moonshots provides investors with a strong mix of defensive assets and growth-oriented programs.

As of the date of publication, Ian Bezek held a long position in META stock. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Ian Bezek has written over 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a $300 million New York-based hedge fund. You can reach him on Twitter at @irbezek.

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