The Watch List: Google / Alphabet (GOOG)

When I started writing this post it was my intention to make this a list post, with a brief overview of several companies I’m considering buying at some point in the future. I like to keep my blog posts relatively brief so I decided to split the original post into a little series called The Watch List.

This series will not include energy stocks as I already have more than enough oil & gas related stocks for the time being. Stocks I already own aren’t part of the scope of these post but if opportunity arises I’d like to increase my positions in several stock, including Coca Cola (KO) and Unilever (ULVR).

Google

Google/Alphabet (GOOG)
This is far from a dividend growth stock, in fact they don’t even pay a dividend, but since Google won the search engine war in the early 2000s it has always been one of my favorite companies. In many ways Google had a tremendous impact on the Internet but in its early days no one expected the company would become what it is today. That is until Google came up with its ingenious, wildly profitable advertising model and turned into a company generating billion dollar profits.

Google was almost the first stock I bought sometime in 2005 but I was a total newbie to investing and didn’t go through with it. Partly because transaction costs in my country were so high back then but also because Google’s share price continued to soar. Looking back, it would have been a major winner as its share price more than quintupled versus a decade ago. But as I had no real strategy back then, had I bought it I would probably have sold it a long time ago after a double-digit gain.

Mayhaps they’ll initiate a dividend sometime in the future to return cash to the shareholder, they’re currently sitting on almost $70 billion in cash, but this is far from certain. The company seems intent on growing in all sorts of directions, no matter how crazy, especially with the new Alphabet corporate structure.

If Page and Brin can continue to work their magic, perhaps Alphabet may eventually turn into a tech-oriented version of Berkshire Hathaway. Although there are worries Google does not take shareholders at heart as some see several moves of the company as a way for the founders to increase their control (see the Google share classes) and as a method of reducing scrutiny over the countless unrelated and/or profitless projects the search firm has.

Then again, crazy investments are what made Google what it is today. Twelve years ago Google bought Applied Semantics for $102 million in an effort to improve its online advertising technology. That acquisition turned into Google’s Adsense advertising program and is now pulling in quarterly revenue north of $3.6 billion and hundreds of millions in profit.

With revenue growth slowing to the low teens (partly due to currency impact) and a P/E of around 33 a large investment in this stock seems hard to justify. However, if analysts are correct Google’s growth profile places the forward P/E for 2016 at a much more reasonable figure of just under 20.

I’m not sure if I’m going to initiate a position anytime soon but this is one of the few non-dividend paying stocks I’m considering for my portfolio.

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6 thoughts on “The Watch List: Google / Alphabet (GOOG)

  1. No More Waffles

    DAC,

    For some weird reason I’m a big fan of Google, but I would never ever invest in them. Not only aren’t they investor friendly (you mentioned this yourself), but they have so many things going on that I hardly understand myself. Now with the Alphabet structure the overall scope of the company is much clearer, but I still believe Google’s scope remains too big to fully comprehend what you’re investing in.

    Besides, they don’t pay a dividend, so they’re not a good match for my strategy.

    Looking forward to see you take the plunge or not!

    Cheers,
    NMW

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    1. Dividends Are Coming Post author

      Hi NMW,

      If they’d initiate a dividend it would definitely make the choice a lot easier. I’d much rather hold something like Google for the long-term than a stock like AAPL. In my eyes the advertising businesses are the main earnings driver at Google and will probably remain so for a long time, most of the other units either help the advertising business grow (like Android and YouTube) or could be potential moonshots (driverless cars, genetics, etc.) If I pull the trigger it will only be a small position of one or two shares.

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  2. No More Waffles

    DAC,

    Agreed! It’s a fantastic business, but I don’t understand all the ins and outs of where they’re putting their money, so that’s a no go for me.

    I’d rather own Google than Apple too though. Apple shareholders are just waiting for a disaster to happen when Apple misses the bandwagon on some new technology. I wouldn’t feel comfortable if my earnings came from one product in a highly volatile market.

    Cheers,
    NMW

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    Reply
    1. Dividends Are Coming Post author

      I agree about Apple, the company is in a very fast moving market and continuously has to come up with new ideas to keep itself from shrinking. I’m very surprised they kept the ball rolling for so long.

      I must admit I’ve been quite wrong about them for quite some time, I never expected products like the iPhone would become such a huge success, pretty amazing they got so many people hooked on such high-priced phones.

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  3. ambertreeleaves

    hey DAC,

    Google is indeed an interesting stock to follow. I would not mind owing a few of them. They are a cash generating machine, at least for now. My approach is to wait and be patient in the hope I can buy them at the next crash.

    ATL

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  4. Pingback: The Watchlist Part 2: Royal DSM | Dividends are Coming

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