Top Picks 2018: Alphabet (GOOGL)

01/23/2018 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Our Quadrix uses more than 90 variables to in six categories to help screen stocks to find those best situation to achieve superior growth, explains, Richard Moroney, editor of Dow Theory Forecasts.

Stocks on our Focus List average Quadrix scores of 80 for Momentum (growth rates for periods of up to one year and some profit-estimate related metrics) and 92 for Quality (long-term growth rates and returns on assets, investment, and equity).

Alphabet (GOOGL) exceeds the industry average for four key variables. The company has put on a growth clinic for more than a decade. In the last 40 quarters, the company has never failed to deliver year-to-year sales growth.

During  that period, quarterly per-share profits fell just five times and operating cash flow just three times. Despite Alphabet’s huge size, it continues to grow like a young company, managing six consecutive quarters of at least 20% gains in sales.

The technology sector seems reasonably valued versus its own historical norms from multiple angles. The average technology stock has exceeded its current trailing P/E ratio in 36% of months since 1994, indicating the sector remains well below previous extremes.

The consensus projects sales growth of 22% this year and 19% next year. Alphabet doesn’t look overly expensive — when you take its growth into account. At 28 times trailing earnings, Alphabet trades roughly in line with the industry average.

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