Alphabet Tempts Traders Hunting Bargains in Tech-Stock Rebound

(Bloomberg) -- Investors on the hunt for bargains after an ugly month for the Nasdaq 100 could do worse than Alphabet Inc.

The Google parent's shares are considerably cheaper than they were last year with the stock down almost 10% from its November record. At 22 times estimated profit for the next year, Alphabet trades at a 15% discount to the Nasdaq 100 and is projected to deliver faster revenue growth this year than Apple Inc.

That combination has helped make Alphabet, which reports earnings after markets close on Tuesday, a favorite of analysts and investors searching for shares of large-cap companies offering growth at a reasonable price. The internet giant is the second highest-rated megacap on Wall Street after Amazon.com Inc., with all but one analyst recommending buying the stock.

“Google is cheap and it's got substantial growth,” said David Wagner, a portfolio manager at Aptus Capital Advisors, who estimates 20% earnings per share expansion over the next five years. “I'll take that any day of the week.”

Alphabet has gained nearly 8% since Microsoft Corp. reported better-than-expected results last week, outpacing the Nasdaq 100 even after the tech benchmark notched its biggest two-day gain in more than a year.

One of the reasons Alphabet is cheaper than Apple and other megacaps is that the Google owner spends a lot on “moonshoots and new technologies,” while Apple is seen as more shareholder-friendly, said Neil Campling, an analyst at Mirabaud. Both companies buy back huge amounts of stock annually, though Apple's repurchases are far bigger and, unlike Alphabet, it pays a dividend.

Analysts have continued to raise price targets for Alphabet this year, resulting in the widest margin to the stock price since March 2020, according to data compiled by Bloomberg. The average target on Wall Street implies a 24% gain from current levels.

Analysts at Raymond James Financial Inc. say this week's earnings should reflect positive trends for online advertisers, especially for Alphabet.

“We are most positive on Alphabet within the large-cap names given our expectation for continued search and video strength and attractive valuation,” analysts Aaron Kessler and Andrew Marok wrote in a research note.

Tech Chart of the Day

Cathie Wood's ARK Innovation ETF suffered its worst monthly performance ever in January. Rising bond yields and a hawkish pivot by the Federal Reserve have laid waste to the kind of speculative tech stocks beloved by ARK funds. ARK Innovation, introduced in 2014, now has fallen more than 10% each of the past three months.

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