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MarketWatch contributor Philip van Doorn recently spotlighted Alphabet (NASDAQ:GOOG) as the standout bargain among the Magnificent Seven. An intriguing revelation – GOOG stock boasts a forward P/E ratio of 19.7, lower than the benchmark set by the S&P 500.
Van Doorn raises an intriguing notion that these seven companies compose a noteworthy 28.7% of SPDR S&P 500 ETF Trust’s (NYSEARCA: SPY) net assets. Could the market be placing an inordinate bet on these elite few, sidelining the other 496 stocks?
Despite its allure as a cost-effective option, I remain cautious about GOOG stock’s true worth. When a stock appears cheap, there’s often an underpinning reason. The markets are adept at exposing a company’s vulnerabilities.
While Alphabet may seem like a steal at present prices, it’s imperative to scrutinize its weaknesses before making an investment move.
The Interplay of AI and Corporate Culture at Alphabet
Van Doorn references Moffatt Nathanson analyst Michael Nathanson, who rates the company as a Buy with a $175 target price, signaling a 21% potential upside from current levels.
Contemplating Alphabet’s ability to leverage its top-tier engineers and commitment to machine learning for customer-centric product development is pivotal.
Despite its innovative track record, Alphabet seems stymied by its corporate culture – a fraught terrain for advancement.
Long-standing criticism of Google’s corporate environment hints at internal and external discord. Allegations of a toxic work climate and gender imbalance have plagued the company for years.
With calls for a new ethical culture at the helm, the pressure on Alphabet CEO Sundar Pichai mounts, underscoring the challenges rooted in the company’s ethos.
Abundant Cash Flow Dynamics
While Google has ceded digital advertising ground to Meta Platforms (NASDAQ:META) and Amazon (NASDAQ:AMZN) over the past years, it remains a cash flow juggernaut.
In 2023, Google generated a whopping $69.5 billion in free cash flow from $307.4 billion in revenue, marking a robust 22.6% margin.
Despite its financial heft, Alphabet trails behind Meta in terms of cash flow generation. The competitive landscape underscores the significance of swift strategic recalibration for enduring market cap supremacy.
Alphabet’s enterprise value stands at $1.66 trillion, reflecting a free cash flow yield of 4.2%. In comparison, Meta’s enterprise value of $1.24 trillion renders a FCF yield of 3.5%.
Given META’s impressive stock surge – up nearly 153% in the past year – the divergent trajectories of GOOG and META stock performances become apparent.
Considering other entities within the cohort to discern their FCF yields above 4.2% is pertinent. Notably, Nvidia’s (NASDAQ:NVDA) soaring stock signalizes its distinct standing in the digital realm.
Alphabet’s ownership of YouTube bolsters its market positioning, offering a lucrative avenue for ad growth. Anticipating a transformative revamp under a new CEO underscores the prospect of GOOG stock as a prudent investment given the current landscape.
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The post GOOG Stock Is the Cheapest of the Magnificent 7. But Is It a Buy? resonates with InvestorPlace’s financial insights and analytical musings.
Will Ashworth’s deep-rooted experience in investment writing underscores the meticulous analysis intrinsic to deciphering market intricacies.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
