I wonder what price Buffett would start buying Alphabet?
I would guess he would be comfortable if it got to 12 to 14 times free cash flow. Would require considerably more general market pessimism before it would get to those levels though. Might take Jeremy Grantham’s predictions to come true…
It would be a big liquid stock he could put $50 Billion in. He liked the newspaper and TV businesses and he likes the Google and YouTube business from public comments. It would be Buffett’s style to wait until the business is fully entrenched before getting in. Just waiting for the price. Would be nice to see Alphabet in the portfolio, along side Apple.
. 30% net margin
. 30% ROE
. 68% ROE excluding cash and investments
. 2021 profit after tax $76 Billion includes losses from cloud $890 Million and losses from Other bets $1.45 Billion
. Still growing strongly
What do you reckon is the price Buffett would start buying Alphabet in 2022?
$2,529 current price
$2,000
$1,500*
$1,250
*my guess
7 Likes
Very interesting question.
Obviously I have no clue but perhaps it would be bought first by T or T? But that wouldn’t be in such volumes as to move the needle I don’t suppose.
Your guess of $1,500 is a 40% fall from the current price. I imagine there’ll be plenty of other things he likes on sale as well if that happens. If so, would he choose Alphabet? - as you pointed out the attraction would be that he could invest a lot of money very easily in a great business.
If so, does he buy GOOG or GOOGL?
1 Like
…the attraction would be that he could invest a lot of money very easily in a great business.
I agree that it’s probably a nice pick, but he could have done that any number of times in the past and didn’t.
And not just on a few panic days…the price seemed pretty attractive–by Google standards–pretty much the whole year before the pandemic hit.
Maybe he likes a slightly higher ratio of bird-in-hand to two-in-bush?
Or he perceives more unknowns about the firm’s longevity than we do?
That being said, it’s true that today’s valuation level appears to be more reasonable that it was.
A quick and dirty yardstick: trailing P/S is now only 5% above its long run typical value of around 6.44
Entry prices under 6 times trailing sales have generally worked out very well in the past, and pretty quickly too.
Higher entry prices have also worked out very well…just requiring more patience…because the firm has done so well.
If you overpay by an amount equal to a year’s typical growth in value per share, you can expect only one flat year. That’s not so bad.
Jim
7 Likes
My view is straight out of Charlie Munger’s playbook: Don’t expect linear growth from any business.
I know…Google (and all the rest) is (were) different.
May be the Alibaba thing. Posters will all decide on stock price, today’s stock price, as evidence of their view. Old dealraker has seen alot through the years. Stock prices change dramatically at times.
3 Likes
Goog probably single handedly populated the whole machine learning and deep learning stuffs, and benefited from offering ML-enabled cloud services.
This is the result of their culture that encourages research that doesn’t have to make money (the ML Python library Kera is free and is started at google).
But… it’s already a trillion dollar company…
It would be a big liquid stock he could put $50 Billion in. He liked the newspaper and TV businesses and he likes the Google and YouTube business from public comments. It would be Buffett’s style to wait until the business is fully entrenched before getting in. Just waiting for the price. Would be nice to see Alphabet in the portfolio, along side Apple.
. 30% net margin
. 30% ROE
. 68% ROE excluding cash and investments
. 2021 profit after tax $76 Billion includes losses from cloud $890 Million and losses from Other bets $1.45 Billion
. Still growing strongly
What do you reckon is the price Buffett would start buying Alphabet in 2022?
$2,529 current price
$2,000
$1,500*
$1,250
*my guess
Your guess sounds about right. But…
Google trades at 24 times last year’s earnings, Apple is at 27.
Google has grown at 35% per annum over the last 3 years, Apple has grown at 17%. Both had spectacular years last year, but in Google’s case, it was building on steady increases previously, whereas in Apple’s case, it was after having stagnant earnings for the previous few years and a blowout year last year, the year of work from home. And Google’s success is not conditional on China manufacturing iPhones and buying them (almost all their manufacturing, 20% of their sales.)
If Buffett is comfortable holding Apple at today’s prices, in my opinion he should be comfortable buying Google at the current price which is cheaper, has better growth, and has an even stronger moat in my opinion. Why he (and I) haven’t bought it already is a mystery. Perhaps it has to be 20% cheaper to account for the potential capital gains taxes he would have to pay on Apple if he were to sell it, but even with a haircut for capital gains, I think Google at today’s price would be a better investment.
FD: I am not Warren Buffett
dtb
15 Likes
“Why he (and I) haven’t bought it already is a mystery.”
one poster on Twitter noted that if Berkshire had just bought it each time he and Charlie publicly lamented missing it, they would have scored.
3 Likes
one poster on Twitter noted that if Berkshire had just bought it each time he and Charlie publicly lamented missing it, they would have scored.
Hmmm, maybe we can use that as a future buying signal for other companies.
Jim
6 Likes
"
Hmmm, maybe we can use that as a future buying signal for other companies."
Few understand this. 