Google UP on attractive valuations, analysts upgrade

The stock of Alphabet (NASDAQ: GOOG), the parent company of Google, fell to a low of $803.50 on March 27th, from about $853 a week before. The main reason for the sharp decline in the share price is the suspension of ads in YouTube by companies such as J&J, Verizon, and AT &T, after their ads were shown alongside videos supporting hate, terrorism and other objectionable content.

However, the stock of Alphabet has recovered to close at about $824 on Friday, after the company informed that it is conducting an extensive review of its advertising policies. The company also stated that it would give companies more control over where their advertisements are displayed. We anticipate further uptrend in the stock on the basis of the reasons given below.

The dominance of Google in the World Wide Web can be understood by its rankings. Google is the most visited site in the world. This is followed by YouTube. Notably, Google India (google.co.in) ranks seventh in the most visited websites.

Waymo

Alphabet is known for making risky investments or so called ‘moonshots’. However, some of them have turned to be promising. For example, the autonomous driving car project, named Waymo, is making great strides. If successful, Waymo would create another source of revenue for the company. However, before 2015, Alphabet was known for its careless spending. The opinion has changed since the arrival of Ruth Porat, CFO of Alphabet. She ensured that money is not wasted and well spent on projects. The transparency of the company is now widely appreciated.

The stock is trading at a forward PE ratio of 21. The company is expected to report annual earnings growth of 19.3% for the next five years. Over the past one year, the stock has outperformed the Zacks internet services industry. Thus, we can argue that Alphabet currently trades at a fair value.

In a research report published last Wednesday, analysts at Zacks Investment Research had upgraded the stock of Alphabet to a “buy” rating, from the prior “hold” rating. A target price of $939 was also issued by the firm. Similarly, Vetr equity research firm has also upgraded the stock to a “buy” rating, from the earlier “hold” rating. The target price issued by Vetr was $891.70 for the stock of Alphabet. Fundamentally, the stock remains a buy on dips on the basis of the details provided above.

After bouncing off the major support at 803, the stock is consolidating near the minor support level of 821. The +DI line of the ADX indicator has also crossed above–DI line. Thus, we can expect a further increase in the share price.

To gain from an increase in the share price, a binary trader can consider purchasing a call option which expires on or around April 18th . It is desirable to purchase the option when the stock of Google trades near $824 in the NASDAQ.

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