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Our monthly Fire Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of growth-focused Fire recommendations, to help Fools build out their portfolios.
- Q3 results from Alphabet and other mega tech companies spooked the market as they reported a slowdown in growth and nearly all of their management teams noted economic headwinds are mounting.
- Alphabet in particular caused nervous investors to become more nervous as it reported only 6% year-on-year revenue growth and operating margins that dropped to 25% from 32% this time last year.
- But stripping out the effects of the strong dollar, revenue growth was a more amenable 11% in constant currency terms. And while margins shrank as management further grew the company’s headcount, we were told operating expense growth will moderate in Q4 and management evidently expect to further preserve margins in FY23.
- After selling off following Q3 results, Alphabet now trades at 18.2x consensus forward earnings and 17.9x trailing earnings. We think that’s a valuation that merits members taking a closer look at the company operating the internet’s go-to search tool, its favourite browser, most popular phone operating system, most visited video platform and more.
- While macroeconomic pressures will dent sales growth and profitability over the short term, I see reason to believe that owning all of these tremendously popular and valuable assets — combined with the underlying profitability of the core ad business and long-term tailwinds at the back of people spending more and more time online — make Alphabet worth considering today.
“Best Buys Now” Pick #2:
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