Stocks A to Z / Stocks G / Alphabet (GOOG)
No. of Recommendations: 14
There is a case to be made that LLM spending is going to raise capex and consequently hit net margins. So, other things being equal, the "normal" or fair price-to-sales ratio would be expected to fall a bit. Yet price to trailing sales ratio is (literally in my case of my Excel sheet) off the chart at 11.7.
Great firm, but a fella has to ask, is the pricing starting to seem rich enough that the odds favour lightening now and waiting for a better re-entry?
I sold most of my position recently for valuation reasons. Today I just wrote ATM $345 calls against much of the rest turning it mostly into a covered call position. Purely the solution for the wishy-washy who can't decide whether to sell or not. If exercised the exit price is $398 and change, 13.6 times current trailing sales. (sales will presumably be higher by the time the options mature). Good returns have historically followed entries under 6 times sales. 13.6 is bigger than 6.
Admittedly also coloured a bit by the fact that, generally speaking, I'm slowly winding down my last few remaining US positions. Capital including cash is now predominantly in UK, Canada, Europe.
The market is roaring and I don't think we are at a market top. But hey, when the market offers you a really great price for something, it pays to at least think twice before turning down the offer.
Jim
No. of Recommendations: 2
Great firm, but a fella has to ask, is the pricing starting to seem rich enough that the odds favour lightening now and waiting for a better re-entry?
Agreed. Yesterday I sold my position in a tax-advantaged account at $344.76, a P/E of 34. I bought that position last April at $152.00, a P/E of 19.
I still have a huge slug in a taxable account, and so selling those shares or writing covered calls would trigger taxes. I don't want to let the tax tail wag the dog, but I usually let the tax tail wag the dog.
Thanks for sharing your $345 calls. Something to consider.
No. of Recommendations: 3
Have those selling GOOG based on valuation considered their ownership stakes in Space X , Anthropic and Waymo?
7% of Space X
14% of Anthropic
80% of Waymo
No. of Recommendations: 7
Have those selling GOOG based on valuation considered their ownership stakes in Space X , Anthropic and Waymo?
Fair point. Though very valuable, I don't think those positions are dominant for valuation purposes, simply because Alphabet's core business is so darned big. (and those are hard to put a justifiable number on)
More to the point, at least for me personally, my current lightening is purely intended as a cyclical wager, on the theory that there are better and worse times to have large positions. I don't have doubts about the overall value trajectory and I'd be pretty long term bullish. I think Waymo in particular may prove to be an outstanding holding over time and I remain bullish. I'm just wagering that the next (say) 1-2 years seem statistically likely to have some re-entry points that offer more, umm, immediate gratification.
Jim
No. of Recommendations: 2
I sold some this morning, and moved then into MSFT
tecmo
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No. of Recommendations: 2
“ I sold some this morning, and moved then into MSFT”
Was yours a Taxable or Tax-advantaged sale?
Considering trimming my smaller portion of GOOGL in my Roth IRA but leave it unchanged in my brokerage account. MSFT is on the watch list as well.
No. of Recommendations: 12
Have those selling GOOG based on valuation considered their ownership stakes in Space X , Anthropic and Waymo?
7% of Space X
14% of Anthropic
80% of Waymo
FWIW
My friendly neighbourhood bot suggests that, looking at actual money transactions rather than press releases, values for those three firms might be:
SpaceX $200bn
Anthropic $350bn
Waymo $126bn
Obviously the values might soar, or not, but it's a snapshot.
Using your percentages, which I also didn't verify but have no reason to disbelieve, that would make Alphabet's shares worth:
SpaceX $14bn
Anthropic $49bn
Waymo $101bn
Total $164bn.
A whole lot of money, but remarkably only 4.17% of current market cap of Alphabet.
Jim
No. of Recommendations: 5
My friendly neighbourhood bot suggests that, looking at actual money transactions rather than press releases, values for those three firms might be:
SpaceX $200bn
Your bot seems to be suffering from Musk Derangement Syndrome, if it thinks SpaceX is only worth $200b. Just based on earnings, which are estimated to be $8b in 2025 on $15-16b in revenues, with revenues and presumabl earnings expected to increase to $22-24b in 2026, a reasonable conjecture would be that earnings will reach $12b this year. At 50% growth and with a huge technological lead in space delivery, the idea that the company might be worth 18x earnings seems crazy. Recent insider share sales are at a valuation of about $800b, and most analysts expect an IPO this year at somewhere between $1-1.5t. That seems a little steep to me, but $200b?
Still your point is well taken, even at $1.5t, their 7% SpaceX stake would only be worth $105b, less than 3% of Alphabet's market cap.
No. of Recommendations: 1
"Using your percentages, which I also didn't verify but have no reason to disbelieve, that would make Alphabet's shares worth:
SpaceX $14bn
Anthropic $49bn
Waymo $101bn
Total $164bn."
I still get out of bed for $164 billion. Well, it depends who is in it.
As a very long time Berkshire holder, I find many of us track our holdings. That $164b or so is about equal to Berkshire's holdings of Apple, Amex and BAC and 1/3 of Coke.
Material IMO.
Granted, the Vals may be inflated or not. Time will tell. I'm most bullish on Waymo.
No. of Recommendations: 5
Material IMO.
Oh, absolutely. But material only in an absolute sense.
My point wasn't to belittle them, merely that you don't really have to deal with those holdings separately when doing a valuation estimate of a GOOGL share. Most metrics you're likely to use will have error bars that swamp the value of those holdings, big as they are.
If you can peg the value of a share within 10% you're a more skilled practitioner than I. Note my hugely insightful comment further up thread that "13.6 is bigger than 6". And even then I couldn't make up my mind whether to sell out or not : )
Jim
No. of Recommendations: 8
I still get out of bed for $164 billion. Well, it depends who is in it.
As a very long time Berkshire holder, I find many of us track our holdings. That $164b or so is about equal to Berkshire's holdings of Apple, Amex and BAC and 1/3 of Coke.
Material IMO.
Of course $164b is a lot of money, but the question is, is it a material consideration in the valuation of a company worth over $4 trillion. The same amount of value in investments in Berkshire is relatively more important for that company that is only worth $1 trillion.
The market cap of Google has gone from 20x earnings to about 30x earnings. The fact that there are also some valuable investments (SpaceX, Anthropic, Waymo) that are worth about 4% of the company's market cap but are not being counted in the earnings just means that the non-SAW bits of Google have really just gone to 29x earnings. That does not do much to change the conclusion that the share price may be getting ahead of itself.
dtb
No. of Recommendations: 4
"Of course $164b is a lot of money, but the question is, is it a material consideration in the valuation of a company worth over $4 trillion. The same amount of value in investments in Berkshire is relatively more important for that company that is only worth $1 trillion."
fully agree. The growth prospects for GOOG are quite a bit higher than Berkshire. Too early too call but I am very comfortable with GOOG as my 2n largest position.
No. of Recommendations: 0
and more profitable
No. of Recommendations: 5
Just a follow up on this post of mine from a while back
Today I just wrote ATM $345 calls against much of the rest turning it mostly into a covered call position. Purely the solution for the wishy-washy who can't decide whether to sell or not.
FWIW, I sold those for $53.41 on Feb 2.
I bought them back for $13.60 on Mar 30, so I made $39.81 a share in a couple of months. I still have the stock.
I'm still not super keen on current valuation levels. I just sold fresh calls, $335 strike this time, for $43.34. If it dips again, I make a few bucks again quickly. If it stays flat-to-down for the year, I make $43 slowly, a bit over 13% of current stock price, 17%/year annualized. If the stock is very high around year end I end up selling at a price that I consider "probably too high".
There are probably *very* much better ways to make a buck when markets are volatile, but when you're on the fence about selling it fits the bill for me.
Jim
No. of Recommendations: 7
There are probably *very* much better ways to make a buck when markets are volatile, but when you're on the fence about selling it fits the bill for me.
Jim, just want to thank you for regularly and proactively "showing your work", your thinking process.
No. of Recommendations: 0
I just initiated a Gitlab position in anticipation of writing calls against it. Not my comfort zone! But it feels like a shift in the market, possible in some PaaS stocks, specifically.
No. of Recommendations: 3
I'm still not super keen on current valuation levels. I just sold fresh calls, $335 strike this time, for $43.34.
...
Jim, just want to thank you for regularly and proactively "showing your work", your thinking process. Yeah, well, that doesn't mean any of it is a good idea.
Today I bought back those calls for a small loss (though a slightly larger gain on the shares since then), since i looked one more time at valuation levels and I just don't feel comfortable here.
Fabulous firm, great for "buy it and forget it", but that's not my style even if it usually makes good sense.
Given that there are good reasons to think that net margins will fall in the next couple/few years, at over 11x the bottom graph here is not really an inspiring omen for short or even medium term returns.
https://www.macrotrends.net/stocks/charts/GOOGL/al...Even if you add $5 a share or whatever for the shareholdings in other things.
A motion to adjourn is always in order : )
Jim
