Motley Fool: Investors could recite Alphabet
Online services giant Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) is built to thrive in a variety of economic environments, thanks to its ultra-flexible umbrella organization, which allows it to expand in many industries.
If online search and advertising revenue dried up, Alphabet would rely on its Android smartphone, YouTube video platform and Google Cloud decentralized computing service in the short term. Promising side gigs such as the Waymo self-driving taxi service, Calico medical research group or Verily health care projects unit might pick up the long-term baton. Or maybe Google Cloud will just run with it instead, powered by its expertise in artificial intelligence.
The U.S. Department of Justice is reportedly considering breaking up Alphabet after multiple legal challenges. In August, a federal judge ruled that when Google paid companies like Apple and Samsung to be the default search engine on their devices, that constituted an illegal monopoly. While the idea of a breakup worries many investors, if it happens while you’re a shareholder, you’re likely to receive shares in the new, smaller companies.
Both classes of Alphabet’s stock had recent forward-looking price-to-earnings (P/E) ratios around 17 and seem attractively priced for long-term investors. (Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Alphabet.)
My Smartest Investment
My best financial move was buying stocks when it felt stupid to do so. – S.F., online
The Fool responds: Bravo for you – buying stocks when they’re down is one of the smartest moves an investor can make.
It can feel hard to do so, though, because when the stock market is down, investors are generally pessimistic. (That’s actually why the market is down – because many investors are selling shares.)
But a down market can be full of terrific companies trading at prices that are more attractive than they used to be.
As Warren Buffett has advised: “Be fearful when others are greedy, and be greedy when others are fearful.”
To be a great investor, you need to be able to think for yourself rationally and not just follow the crowd.
Following the crowd can have you buying into popular stocks after they’ve soared – and perhaps when they’re overvalued and due to pull back for a while.
You’ll feel less stupid buying when others are selling if you take some time to learn more about investing – and contrarian investing in particular.
Then the next time there’s a market pullback, you’ll feel smart, not stupid, buying stocks.
Ask the Fool
Q: A company I’m interested in seems attractively priced. What should I learn about it before investing in it? – P.T., Exeter, New Hampshire
A: The more you know about the company, the better decisions you’ll likely make about it. Here are some things to check out:
First, make sure that it’s not a penny stock (with shares trading for less than about $5 apiece), as penny stocks are notoriously volatile and can be ultra-risky.
Check to see what the company’s market capitalization is, too: A company’s “market cap” is its total number of shares times its current share price, reflecting its current total market value.
Large-cap companies, those with values of $10 billion or more, will be more established and likely more stable than small- or micro-cap companies (those with values below $2 billion or $300 million, respectively).
It’s best if the company has competitive advantages, such as a strong brand, proprietary technology or economies of scale.
Review the company’s financial statements, too – specifically the quarterly “10-Q” and annual “10-K” reports. You can generally find them at sites such as Finance.Yahoo.com or SEC.gov/edgar.shtml – or at the company’s own website.
Ideally, you want sales (sometimes called revenue) and income (earnings after expenses) to be growing.
Heavy or quickly growing debt are red flags. The company’s statement of cash flows shows how it’s generating cash. You want to see most cash derived from ongoing operations (the making and selling of products or services), and not from issuing debt or stock, or selling property.
Q: I’m thinking of day-trading. Thumbs-up or thumbs-down? – B.S., Granville, Tennessee
A: Thumbs-down. Way down.