The Time to Buy GOOG Stock Is Now
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is expected to disclose its fourth-quarter 2022 financial results after the market closes on Feb. 2. As that date approaches, many investors are feeling anxious about GOOG stock. Yet, bona fide contrarians should use that anxiety to their advantage, as fear and muted expectations could lead to a positive surprise.
The same FAANG stocks that seemingly held up the market for years were comparatively poor performers in 2022. They fared well in January, but there’s still a lingering nervousness surrounding tech titans like Alphabet.
Consequently, Alphabet shares are bargain-priced right now. This is indicated by multiple valuation metrics. As Wall Street sets a low bar for Alphabet, don’t be surprised if investors climb the wall of worry in 2023.
What Alphabet’s Investors Are So Concerned About
What are GOOG stock investors so anxious about? It’s a valid question, as inflation peaked in June of last year. The Federal Reserve isn’t expected to raise interest rates forever. Thus, the same technology stocks that were beaten down in 2022 should be out of the woods at some point this year.
Alphabet recently cut “approximately 12,000 roles,” or roughly 6% of the company’s staff. Financial traders shouldn’t be angry about this. Bernstein analyst Mark Shmulik estimates that Alphabet’s job eliminations could save the company $2.5 billion to $3 billion.
Another concern among nervous investors is the U.S. Department of Justice’s antitrust lawsuit against Alphabet. Not everyone’s overly worried, though. Concerning the Justice Department’s recent complaint against Alphabet, New Street Research policy analyst Blair Levin assures, “nothing jumped out at us as a smoking gun or even something new or surprising to those familiar with the business.”
Furthermore, Levin is “skeptical of the likelihood of success in terms of the new litigation.” Besides, Alphabet plans to fight back, asserting that the company will “defend itself vigorously.”
Fear Has Driven GOOG Stock to a Low Valuation
Anxiety over Alphabet’s future should be viewed as an opportunity, not as a problem. Check some commonly cited valuation metrics, and you’ll see that there’s a prime tech-industry bargain afoot.
Because of all the negative sentiment and fear, Alphabet now has a price-to-earnings (P/E) ratio (all of these metrics refer to the trailing 12 months) of 20.3x. That would have been unthinkable during the euphoria phase of late 2021.
Moreover, Alphabet’s price-to-book (P/B) ratio of 4.84x is reasonable. (I prefer below 5x.) We can also cite the company’s compelling price-to-sales (P/S) ratio of 2.92x. (I look for less than 5x, and preferably below 3x.)
Now, if you’re biting your nails because Alphabet’s fourth-quarter 2022 earnings report is coming up on Feb. 2, just relax. Wall Street’s expectations are rather low. Analysts, on average, think that Alphabet’s Q4 sales will only increase 2.1% year-over-year.
They also believe that Alphabet’s earnings will decrease 23.5%. This certainly looks like a low hurdle for Alphabet to clear, so don’t be shocked if the company delivers Street-beating results this time around.
You Can Buy GOOG Stock Right Now
From interest rate hikes to antitrust litigation, it looks like a number of concerns have already been priced into GOOG stock. The result is a terrific value proposition for investors.
And, don’t worry too much about Alphabet’s imminent earnings data release. With so much disappointment already baked into the pie, Alphabet’s investors should at least pull off a “not as bad as expected” rally — and if you’re a contrarian, you can take a position in advance of this.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
