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Investment Strategies / Falling Knives
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Author: DTB   😊 😞
Number: of 577 
Subject: Re: FKA: Alphabet
Date: 02/27/2025 3:22 PM
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No. of Recommendations: 8
...certainly isn't cheap by any conventional metric (P/E 21). It isn't even that cheap for Alphabet, which statistically has been a great wager only under 6 times sales (right now at 6.41).
But I find myself starting to watch, thinking about the price at which I would like to add to my long term position. Maybe now, maybe soon...

Even now, I think I'd pencil in good chances of a double digit rate of return in the next couple/few years.



Yes, I have been adding some too, and I would be happy to get a chance to buy more. At a reasonable price, it is on the short list of companies with great management, customer loyalty, and great growth prospects, whose shares I have resolved never to sell: BRK, GOOG, META, IBKR, PGR, FFH. I just need another chance to make up for my past errors selling BRK and especially META...

21x earnings seems a bit expensive, but Alphabet is still generating a lot of growth, and I think they have lots of growth opportunities, particularly with Android and Youtube (like Meta with their unmonetized Whatsapp). For instance, revenue increased 14% last year, while earnings increased 36%. Even if earnings keep growing at 'just' 15-20% a year, today's price at 21 times last year's earnings doesn't seem at all unreasonable.

There were some concerns about stock-based compensation raised on the Berkshire board, which I believe are largely unfounded. Alphabet's $100.1b earnings for 2024 are what's left after deducting the $22.8b (!!) in stock-based compensation. If you look at net cash provided by operating activities ($125.3b), by adding back non-cash expenses like SBC, you get an even lower P/E ratio, which one should ignore; SBC is a real expense. But deducting it from GAAP earnings seems like it would be double-counting. I think it is obvious that companies like Google need to retain high-value employees, and SBC is part of the attraction, and an unavoidable compensation expense. It is a lot better than the stock options that used to be given out like candy AND not counted in companies' pro forma earnings. But in any case, it seem's to me it's already accounted for.



And then there's this, which would maybe clinch it as a buy:

Jim Cramer in a latest program on CNBC said he’s been selling Alphabet Inc. (NASDAQ:GOOG) shares at his investing club and mentioned some reasons for his bearish outlook:

“I mean, people know members of my club, they know I’ve been selling it down and selling it down and selling it down. Would it be the first one that I leave of the mag? Yeah, except for it does sell only for 20 times earnings. But I think they really got to rethink what their game plan is here because I feel like Gemini competes with Google search, and the thing is, the ads are endless, and they don’t know how to monitor YouTube.”


All we need now is a Barron's cover: What's wrong with Google?
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