GOOGL

Down 8% today. Could see sub-2000 soon?

Munger once said that Google has the biggest MOAT he has ever seen

Agree, Alphabet is a gem seems very reasonably priced. Multiple has been sliced in half. Been accumulating since 2005 and still adding as it falls in price. Not much worried about the next few months- plan to watch it grow for another decade or two. Billions of folks using several of their platforms daily and growing, terrific management, great young talent, always forward thinking, stellar financials, solid margins, GARP, meaningful buybacks, not to mention likely added interest from the upcoming stock split.

It is hard to see what could kill them.
The Standard Oil rule might apply: If a serious antitrust action started, you’d still want to own the fragments.

Jim

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Yep, I’ve used the current and recent weakness to build a position I’ve wanted for years but never pulled the trigger on before.

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MUCH CHEAPER NOW VS. when written:

https://valuestockgeek.substack.com/p/alphabet-googl?s=w

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Seems like GOOG is now reasonably priced.

We know search and YouTube are monopolies. Fabulous. Risks of course but does it really get much better than this in big stable firms with track records.

The capex appears to be a simply enormous investment in servers for cloud computing etc with companies like PayPal running on Google’s cloud. I can see they are investing huge amounts into this area. I’m hearing a large chunk of the internet globally is running in Google servers. With Amazon, Microsoft and Alibaba and others making up a nice little oligopoly. Big switching costs, so sticky.

Lots of capex pouring into cloud and not currently profitable. Upside. Seems like a good business. Maybe not as good as search or YouTube. But not priced into share price so maybe getting this for free.

Big unknown is what happens to search and YouTube earnings. Easy to find flaws and reasons not to pull the trigger when share prices are falling daily. Fear. But the questions are - is there saturation with the effectiveness of ads? Did the pandemic artificially boost earnings? What happens to ad revenue if we slip into a recession?

Maybe the way to look at it is, okay it’s whatever high teens FCF multiple. Knock 20% off FCF for recession + lockdown non recurring boost. Add on a chunk of earnings for cloud and other loss making businesses. And you still have a high teen multiple but a hell of a business with ability to continue to capture more of the digital world in the next decade.

Looks good to me for my second nibble. Of course the best part is you can buy it and ignore it for the rest of your life and there is a high probability of doing nicely.

At $1,500, which could happen if there happens to be a full blown CRASH, assuming nothing changes to the quality of the businesses and it just got cheaper. Well that would be back up the truck time. Seems unlikely though…

Certainly passes Buffett’s test of buying companies that you are reasonably certain will be earning more 5 and 10 years from now. Or whatever the quote was.

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“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, 10, and 20 years from now.”

Mr BuffDog

Alphabet: meets test

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Seems like GOOG is now reasonably priced. …

For those who still find the current $2100 too rich, check this out:
Write a cash-backed at-the-money $2100 put. Current bid is $220.60.
If assigned, you get a net entry price of $1879.40, a discount of 10.5% to the current price.
Analyst consensus is EPS over $132 next year, so next year when you get the stock it’s a P/E of 14.1.
Seems like a not-bad outcome.

If the put expires worthless, which I think is pretty likely, you get to keep the premium.
220.60 cash return on 1879.40 at risk -s 11.7% return, or 17.9%/year rate.
Also seems like a not-bad outcome.

The trick is to pick the strike and expiry date that gives you two outcomes which you like equally.
Because, sure as shootin’, you’ll get whichever one looks worse at the time.

In this particular case, I think I would go with a slightly higher strike, slightly in the money.
Quite a big cash return that way if it expires.
Since I think a stock price rebound is more likely than a continued slide, the cash return outcome seems a pinch more likely, so that’s the one that needs sweetening.

Jim

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Jim

“Write a cash-backed at-the-money $2100 put. Current bid is $220.60.”

At what expiration?

Hahaha.

I just sold 1 GOOGL Aug 22 $1940 put, and then GOOGL (and the entire market) suddenly started to rise, so I bought it back 30 minutes later and made $800! How easy was that?

Thank you Jim.

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At what expiration?

Sorry.
That was Jan 2023.

There are many choices, that’s just a random example.
But time value is maximized when the strike matches the stock price.

Jim

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I just sold 1 GOOGL Aug 22 $1940 put, and then GOOGL (and the entire market) suddenly started to rise, so I bought it back 30 minutes later and made $800! How easy was that?

I like easy money.
Go take your friends out for a pretentious dinner.

But my wager would be that you’re going to regret one of those two transactions : )

Jim

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But what is your investment case for the STOCK?

But what is your investment case for the STOCK?

I’m an old fashioned and simple guy. I like earnings, and lots of 'em. They don’t have to be today, but I like to expect lots within a decade.
I think GOOGL seems very reasonably priced relative to its likely earnings per share 5-10 years from now.
Only in fairly rare “tail risk” outcomes would it be a poor outcome, and even then (except for asteroids and nuclear winter) probably still far from a wipe-out.

Random spot check:
My rule of thumb is that you are likely to do reasonably well if your entry price is less than 12 times the “pretty darned sure” average earnings per share 5-10 years later.
And you’ll likely do very nicely indeed if it’s less than 10x.
The current price, $2115 as I type, is under 10.4 times notional consensus earnings 3-5 years from now.
So it could do that, then have five years flat, and still meet my tests.
A better way to look at it is that the EPS growth could be half consensus rates and you’d still do better than the average stock in the average year.
Turning it around, earnings per share would have to rise 5.1%/year for the next decade to meet my “you’ll do fine” test,
and they’d have to rise at 7.6%/year to meet my “you’ll probably do very nicely indeed” test.
Those figures seem not to be a big reach.
FWIW, the “analyst” forecast EPS growth in the next 5 years seems to be in the 18%/year range.

Risks seem low.
The balance sheet is what dreams are made of, the moat is a mile deep, and the profits would probably keep rolling in long after a forced breakup.
They do gather a little more personal data than I’m comfortable with sharing myself, but the business model is far from odious.

Jim

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Thank you

Surprised not talk of ROE or ROIC and F/CF/SHARE growth given buybacks. Seems relevant given the $70B buyback,

I think GOOGL seems very reasonably priced relative to its likely earnings per share 5-10 years from now. Only in fairly rare “tail risk” outcomes would it be a poor outcome… The balance sheet is what dreams are made of, the moat is a mile deep

According to the gazillion posts here this is “everybody’s” opinion about Google. If there is ONE company all agree upon it being a clear buy it’s Google — which raises a question:

In days long gone (around 1-2 weeks) before I decided to get out of this crazy market until “It’s all over” and to leave bargain hunting to the knowleadge ones here and especially to Warren I invested heavily in Jan’24 calls. I very much regret this but as I am mentally unable to realise heavy losses I now sit it out. This big investment in Google led me to watch it’s stock price daily and to compare it with that of other growth and of value stocks. This is what I found during the last 1-2 weeks:

A) On days where Value (BRK, WFC, BAM, MKL, WRB, DLTR…) is slaughtered and growth (especially SaaS but also PYPL, FB, MSFT, AMZN…) too: Unsurprisingly GOOGL of course sinks also.

B) Value rises (for just one day) and growth sinks: Unsurprisingly GOOGL of course sinks too.

B) Value sinks but growth rises (always for a day only): Not so GOOGL!

C) Everything goes up (today): Not so GOOGL!

Whatever happens, GOOGL is treated differently, knows only one direction: Down (same as BABA btw). It doesn’t matter that (not only) today SaaS and ARKK are up heavily and “normal” growth is up quite a lot too: GOOGL (and BABA!) “of course” nevertheless is down.

Why, when it’s sooooo obvious that it has a great future and is sooo reasonably priced now “of course”, “without doubt”, with only a neglectable “tail risk” this is THE opportunity of a lifetime to finally do what one missed out doing during the last 1-2 decades and heavily regrets during all those years: To buy a big slice of Google?

Because only here are knowledgeable market participants? And all others are idiots?

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Surprised not talk of ROE or ROIC and F/CF/SHARE growth given buybacks. Seems relevant given the $70B buyback,

Buybacks don’t in general change the value of a firm, so they can’t much affect whether it’s a good investment.
It’s usually a side show.

Some buybacks are done at prices below fair value, so that adds a tiny bit of value.
(typically small percentage below fair value if any, times small percentage of shares…a very small second order effect)

And sometimes, the best available capital allocation for a firm is buybacks, so that’s a good sign that management is sensible.
But on average it does little. And it destroys shareholder value if any are done at prices above true value.
So many people see the EPS rising but fail to see the value of the cash going out the door.

The important number is the denominator…the owner earnings
How precisely those owner earnings are allocated is important, but not nearly AS important.

Jim

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“Buybacks don’t in general change the value of a firm, so they can’t much affect whether it’s a good investment.
It’s usually a side show.”

However, as evidenced by Berkshire’s growing ownership of their cannibals like AXP, it can be a very good thing in terms of increased ownership and claim on those owner earnings. Amazing that Berkshire owns 20% of American Express now due to their buybacks

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Why, when it’s sooooo obvious that it has a great future and is sooo reasonably priced now “of course”, “without doubt”, with only a neglectable “tail risk” this is THE opportunity of a lifetime to finally do what one missed out doing during the last 1-2 decades and heavily regrets during all those years: To buy a big slice of Google?

Because only here are knowledgeable market participants? And all others are idiots?

It’s a good question. There’s obviously a lot of selling going on by people who think it a better idea to sell right now than buy. Snap’s terrible earnings guidance shocked people and made for a big downward adjustment in the near term prospects for internet ad sales. So I guess people are figuring Google is going to be missing expectations for earnings in the coming year.

I don’t know, I just bought a chunk because I love the business and it seemed a reasonable value. I don’t know if it will get cheaper or not, probably so now that I’ve bought in, but I intend this one to be a ‘hold forever’ stock.

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