Motley Fool: An undervalued valuable company
Alphabet’s (Nasdaq: GOOGL) (Nasdaq: GOOG) Google was recently ranked the third most valuable brand in the world by Brand Finance. The company’s Gmail, YouTube and Google Maps services are widely used and helped Alphabet haul in $72 billion in advertising revenue last year.
Alphabet has excellent growth prospects. Its growing ad revenue delivers a steady stream of cash that management can reinvest in technology like artificial intelligence (AI). Over the last year, Alphabet generated nearly $73 billion of free cash flow.
Google’s Gemini AI model is leading to new features that make the company’s products better. For example, the AI Overviews feature is boosting usage of Google Search, and higher engagement can mean increased advertising revenue.
Management sees a lot of opportunities in AI, especially in Google Cloud, where revenue grew 30% year over year in the fourth quarter. Importantly, the cloud-computing business continues to see improving profit margins.
The value of Google’s businesses and the momentum the company is seeing in AI services point to a bright future. With a recent price-to-earnings (P/E) ratio of 21, below its five-year average of 26, Alphabet is a solid stock for long-term investors to consider. (Suzanne Frey, an Alphabet executive, is on the Motley Fool’s board of directors. the Motley Fool owns shares of and recommends Alphabet.)
Ask the Fool
Q. What’s the difference between a tax deduction and a tax credit? – W.D., Washington, Indiana
A. Tax season is upon us, and that’s a critical distinction to understand. Deductions and credits will shrink your tax bill, but in different ways. Deductions are subtracted (deducted) from your taxable income, thereby reducing your tax. Credits, though, reduce the tax you have to pay dollar-for-dollar.
An example will help. Imagine that you’re in the 22% tax bracket, and you can take a $2,000 deduction and a $2,000 credit. The deduction will remove $2,000 from your taxable income, saving you from having to pay $440 on it. But the credit lops $2,000 off your tax bill, saving you $2,000.
There are dozens of deductions and credits available to taxpayers, such as the mortgage interest deduction and the child tax credit. Note that if you don’t have a lot of deductions to itemize, you’ll probably simply take the standard deduction. Most people do. (Check with a tax pro for personalized advice.)
Q. Do single people need life insurance? – H.P., Norfolk, Virginia
A. They often don’t need it. Remember that life insurance exists to protect anyone who depends on you financially – such as your children and/or perhaps a spouse or elderly parents. You might even own a business that depends on you. If your funeral expenses can be paid for and no party would suffer financially if your income disappears, you can probably do without life insurance.
If anyone does depend on you financially, look into getting life insurance. Consider a “term” policy, which lasts for a specified period before expiring; it tends to be cheaper.
My dumbest investment
My most regrettable investment move? It was actually someone else’s. Many years ago, I became interested in investing and opened a brokerage account. It was during the first dot-com boom. The brokerage assigned someone to be my trader and, supposedly, my adviser. I did some research and found an upcoming initial public offering (IPO) for the tech company Broadcom. I qualified for it and instructed the agent to buy 100 shares. Some time later, without getting an order from me, the adviser flipped my Broadcom shares when they hit a certain point, investing me in something else. She was proud of herself. I was beyond furious. So, I moved my brokerage business elsewhere and never looked back. It turned out I totally love investing. – C.W., online
The Fool responds: Broadcom shares more than doubled in value on their first trading day in 1998. (IPOs can be especially volatile, often surging in the first days and then retreating. It can be best to give an IPO some time to settle down before investing.) In 2016, the company was acquired by Avago Technologies, which kept the Broadcom name. Since then, the stock has increased in value robustly. We hope you clarify with any future adviser that you want to be consulted before any portfolio trades. (Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)