The stock market has been roiled by economic uncertainty over rapid Federal Reserve rate hikes, inflationary pressure, geopolitical conflict, and the persistence of COVID-19 in ways not seen since the Great Recession. Many investors might be unclear whether or how much any firm is worth investing in when times are tough.
Here are some of the reasons why Alphabet (GOOGL -1.25%) (GOOG -1.00%) is one of the finest stocks to invest in right now.
Alphabet’s business is resilient
Snap’s recent earnings report, which came after a terrible earnings result that demonstrated a steep decline in growth, was met with disappointment by investors, who blamed macroeconomic headwinds and Apple’s privacy policy changes for the company’s dismal performance. As a result of Snap’s comments, many internet advertising firms, including Google , fell as a consequence of concerns about slowing ad revenue and the impact of Apple’s ID changes.
While Google has a far more resilient corporate than Snapchat and many other social media firms, it is still vulnerable.
Advertising demand may shrink in an economic recession, but many companies have learned from prior recessions that cutting the ad budget off prematurely might be harmful in the long term. As a result, numerous businesses will continue to advertise, but they will concentrate on advertising that returns the highest ROI (Google’s Paid Search advertising segment), which is due to relatively few media techniques having as high an ROI.
For example, Google claims that its advertising generate an average of $2 in revenue for every $1 spent. Because of these profits, Search today produces 58% of Alphabet’s income.
Strong balance sheet and free cash flow
One of Alphabet’s most significant advantages is its greater financial flexibility during this recession than its rivals.
The Google parent company has $125 billion in cash and short-term assets on its second-quarter balance sheet. This cash is more than enough to cover $61.35 billion in outstanding obligations over the next year, as well as $14.73 billion in long-term debt, leaving plenty of money left over for it to invest substantially in its strategic goals.
Finally, in its most recent quarter, Alphabet produced free cash flow (FCF) of $27.91 billion, allowing the firm to continue investing in its operations. In an earnings call held in June 2022, Alphabet CEO Sundar Pichai stated that the company planned to invest money on long-term, high-value opportunities such as artificial intelligence (AI), search and cloud computing.
The longer a recession lasts, the more capital investment that businesses with strong balance sheets and good FCF can make in critical markets, out-investing competitors who are retrenching as a result of economic difficulties.
Is Alphabet a good buy?
Because Alphabet’s current price already accounts for the risk of continued economic downturn, its stock is currently valued at a premium. As a result, Google presently has a PEG ratio of 0.77, which is near to a historical low. Most investors believe that a PEG ratio of less than 1 indicates an undervalued company.
If you’re an investor seeking for a long-term investment that will survive and flourish in this tough economy, there are few options better than Alphabet.
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