Stock Pick: Alphabet Inc. (Parent Company of Google)
Alphabet Incorporated (GOOGL) is a company that needs no introduction. The multinational conglomerate was established through the corporate restructuring of Google in October 2015. With the reorganization, Alphabet has created two segments: Google and Other Bets. Google focuses on internet products such as YouTube, Search Ads, Google Play and others while Other Bets specializes in selling internet and television services. The company had a net income of $12.662 billion in 2017.
Technical Analysis of Alphabet Inc. (GOOGL)
GOOGL has been correcting after posting an all-time high of $1,291.44 in July 2018. At that price level, the stock showed signs of bullish exhaustion. First, GOOGL had five attempts to get a weekly close above $1,254. However, each one failed because the volume was anemic. In addition, a long bearish divergence was spotted on the weekly RSI. As volume and momentum faded, price eventually followed.
Nevertheless, the pullback is giving us an opportunity to buy at a firm support level.
Technical analysis shows that GOOGL is headed to meet support of $995. This support level is strong as it used to be a firm monthly resistance back in May 2017. Bulls struggled to breach this area but they finally did it in October 2017. After that, the support was retested in April 2018. The retest led to the rally to the all-time high of $1,291.44.
With the S&P showing signs of weakness, we will just play the bounce to be on the safe side. Be sure to lock in profits once targets are reached.
Fundamental Analysis of Alphabet Inc. (GOOGL)
On top of our technical analysis, fundamental analysis also supports our short-term bullish view.
The parent-company Alphabet Inc. posted its third-quarter figures recently that beat expert estimates. Experts estimated an earnings per share (EPS) of $10.54 but the stock revealed quarterly earnings of $13.06 per share. With this development, GOOGL has gone above consensus EPS three times in the last four quarters.
In addition, its trailing twelve months price-to-earnings ratio is 39.59. While the stock may look overvalued, it is actually not far from its five-year average of 34.42. If you also consider that GOOGL has a five-year maximum P/E ratio of 66.23, then it is safe to say that the stock has some upside potential in the short-term.
The strategy is to buy on dips as close to $995 as possible. As long as the stock is above this level, it has the momentum to bounce to our targets of $1,112. Take that out and there’s a possibility of revisiting resistance of $1,254.
The timeline for the target is less than six months.
Weekly GOOGL Chart
Monthly GOOGL Chart
As of this writing, the Alphabet Incorporated stock (GOOGL) is trading at $1,055.94.
Summary of Strategy
Buy: On dips as close to $995 support as possible.
Target: $1,112 and then $1,254.
Stop: Close below $976.
Featured image courtesy of Shutterstock.