This article is an excerpt from Barronâ€™s 10 favorite stocks for 2021. To see the full list, click here.
Alphabet is recovering nicely from a pandemic-related hit to advertising earlier this year. Revenue was up 15% in the third quarter, and it stands to benefit in 2021 as ad categories like travel improve. The stock looks appealing even after a 31% rise in the stock so far this year, to $1,757 a share.
Alphabet (ticker: GOOGL) is a technology conglomerate. It has a powerhouse group of businesses, including its lucrative core search operation, YouTube, cloud computing, Android, Waze, and Waymo, the leader in autonomous vehicle technology.
Alphabet / GOOGL
The stock trades for 28 times projected 2021 earnings of $62 a share. The price/earnings ratio is overstated because Alphabetâ€™s less-mature and valuable Other Bets businesses, including Waymo, are losing about $4 a share annually and the company is sitting on about $118 billion of net cash, or $170 a share.
The adjusted 2021 P/E of about 24 is close to a market multiple. That is inexpensive for one of the great global franchisesâ€”one that RBC Capital Markets analyst Mark Mahaney sees capable of â€œsustainable mid- to high-teensâ€ growth in annual earnings per share.â€ He has an Outperform rating and $1,900 price target.
Antitrust action is a potential danger, but Adam Seessel, the head of Gravity Capital Management, an Alphabet shareholder, isnâ€™t worried. â€œRegulation and/or a breakup would actually improve share-price performance, just as it did with Rockefellerâ€™s Standard Oil a century ago,â€ he tells Barronâ€™s. â€œForced to come out from behind Mother Searchâ€™s apron, undermonetized platforms like YouTube and Android would be forced to stand on their own, make money, and drive shareholder value.â€
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