Google parent Alphabet ‘s (ticker: GOOG) stock dropped 34% in 2022 as revenue growth slowed and investors worried about weaker search-advertising trends. At a recent $95, the shares now trade for 18 times projected 2023 earnings—a market multiple for a market leader. Alphabet ‘s core price/earnings ratio is even lower, given losses at its Other Bets businesses, including Waymo, a leader in autonomous vehicles.
What turns the stock around? Investor Joe Rosenberg, formerly chief investment strategist at Loews, thinks Alphabet has gotten too fat, and agrees with U.K. investor Chris Hohn, who wrote a letter to Alphabet CEO Sundar Pichai arguing “that the cost base of Alphabet is too high and that management needs to take aggressive action.” That makes sense. The company’s head count is up 20% this year and has nearly doubled since 2018. Alphabet seems to be getting the message—it recently consolidated its Maps and Waze teams. There could be deep cuts ahead.
Alphabet should also be paying a dividend, something that is typical for a mature and earnings-rich company that went public 18 years ago. That possibility is just one more reason to like the stock.
10 for 2023
Good companies at bargain prices could be winners in the new year.
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