Want a safe growth-stock bet in a volatile market? This tech titan checks all the right boxes.
The current bull market started in October 2022, when investors got early signs that the inflation crisis would fade out. Some economic indicators suggest that a sharp market correction might be in the works, but others indicate at least another year or two with continued gains on Wall Street.
The market sentiment is red-hot at the moment. The Dow Jones Industrial Average (^DJI -0.08%) is up by 18% in 2024 and the S&P 500 (^GSPC 0.89%) gained 27% in the same period. As of December 9, the tech-heavy Nasdaq Composite (^IXIC 1.80%) index has soared 32%.
So I get it if you’re concerned about buying growth stocks right now. If the bearish market indicators are right, growth stocks could be in for a world of pain in the next correction.
But what if I showed you a growth stock that could weather any market storm, emerging from the next challenge to deliver market-beating returns on the other side? Whether this is the middle of a relentless bull market or the threshold of a broad market shift, it’s always a good time to buy stock in Alphabet (GOOG 4.30%) (GOOGL 4.38%). If you have the mentality of a long-term investor, any time could be the right time to put $200 — or any other amount — into an Alphabet investment.
What makes Alphabet recession-proof?
Google parent Alphabet has many recession-proof qualities:
- First and foremost, Alphabet has an ironclad balance sheet. It has $93.2 billion of cash reserves and short-term investments but just $12.3 billion in long-term debt. The company could run its business at a massive loss for many years without sparking a financial crisis.
- The business is incredibly profitable. Alphabet generated $55.8 billion of free cash flows over the last four quarters, based on $340 billion of top-line revenues. That’s in a fairly weak year for cash profits as Alphabet is investing billions of dollars in hardware for its artificial intelligence (AI) services.
- The Google search engine and related businesses such as the Android mobile platform and YouTube video service are remarkably resilient. Economic downturns like the coronavirus pandemic, the recent inflation crisis, or the subprime mortgage meltdown in 2008 have slowed them down, but never turned off the growth engines. And they were always ready to run again when the economy got back on its proverbial feet.
- Google Search accounted for 57% of Alphabet’s revenues in the most recent quarterly report, down from 57% in the year-ago period. The cloud-computing platform known as Google Cloud is growing its share of the company’s total sales, tapping into the ongoing AI boom. In other words, Alphabet is diversifying its revenue streams before your very eyes.
- In the long run, this company is better prepared than most for radical market changes. If and when online ads go out of style, Alphabet could pick up the slack with alternative ideas. The leading operations so far include the Waymo self-driving taxi service and the Verily medical research arm. The aforementioned Google Cloud operation collected 13% of Alphabet’s recent sales, up from 11% in the same quarter of 2023. Alphabet can roll with the market’s punches.
Alphabet’s track record in (and around) earlier downturns
The tech titan often shows a robust Wall Street performance when times are bad.
In the subprime mortgage crash of 2008, Alphabet’s stock tumbled alongside everything else in the autumn. It took the S&P 500 (^GSPC 0.89%) nearly two years to get back where it had been but Alphabet’s stock completed the same climb in half the time.
The S&P 500 traded sideways in 2015 amid low oil prices and concerns about the Chinese economy. Alphabet’s stock gained 47% that year, boosted by an incredible second-quarter report. In an era of global economic worries, this company showed fiscal restraint under the new Alphabet structure.
How Alphabet balances bear-market risks and bull-market rewards
The Alphabet conglomerate was built to change with the times. If the next global (or all-American) crisis takes the economy in a whole new direction, Alphabet will surely find a way to stay relevant. When consumer tastes take another sharp turn into unexpected territory, one or more of Alphabet’s subsidiaries should be there to address the new needs. The lessons learned in economic downturns will then create a stronger business for the next bull market.
This isn’t necessarily the safest investment to make in uncertain times, and the stock can indeed take deep dives every now and then. But it’s one of the lowest-risk growth stocks on the market, and Alphabet comes with the promise of stellar performance in bull markets too. Balancing the limited threat and nice bull-market upside, it’s hard to beat this online powerhouse with great offline ambitions.
And that’s not all. One Alphabet share is less than $180 today, and the stock has lagged behind the broader market in recent months. It trades at approximately 23 times trailing earnings or 6.4 times sales, which is a bargain next to other high-growth tech stocks.
Long story short, Alphabet is a great buy if you have $200 to invest (or any other amount if your broker supports buying fractional shares).
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
