In this piece, we’ll take a look at the 5 Best Blue Chip Stocks to Buy According to Phill Gross and Robert Atchinson’s Adage Capital. For more stocks, the risk/reward, and the methodology of this list, head on to 10 Best Blue Chip Stocks to Buy According to Phill Gross and Robert Atchinson’s Adage Capital.
05. Alphabet Inc. (NASDAQ:GOOG)
Adage Capital Management’s Stake Value: $682.261 million
Percentage of Adage Capital Management’s Portfolio: 1.56%
Number of hedge fund holders: 153
As per Insider Monkey’s database, 153 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the second quarter, down from 160 in the previous quarter. For Q2, Adage Capital holds 313,070 shares of Alphabet Inc. (NASDAQ:GOOG) worth roughly $682.261 million, comprising 1.56% of its portfolio.
On September 14, the Personal Information Protection Commission of South Korea announced in a statement that it had penalized Alphabet Inc. (NASDAQ:GOOG) $50 million for privacy infractions. The data watchdog asserts that Google did not adequately seek consent from users or fully disclose the reasons for data collection and usage, particularly with regard to the use of behavioral data to forecast consumer interests in marketing and advertising.
Merion Road Capital discussed Alphabet Inc. (NASDAQ:GOOG) in the second quarter investor letter. Here is what the fund specifically said about Alphabet Inc. (NASDAQ:GOOG):
“The Long Only portfolio was down a bit more than 20% during the quarter. Our largest holding, Alphabet Inc. (NASDAQ:GOOG), was unsurprisingly the largest detractor for the period. GOOG needs no introduction as it likely touches all of our lives multiple times a day. The biggest risk to GOOG is their exposure to advertising budgets, a historically cyclical category spend. While GOOG was able to grow their topline during the 2008-2009 period, they did so by taking share from traditional media. Today digital advertising already accounts for ~65% of total US ad spend; therefore, the potential benefits from further share gains are likely to be outweighed by a shrinking pie. Obviously, this is very short term oriented and will be a footnote 5 or 10 years down the road. But even looking at near-term operating performance, it is possible that advertising might prove to be less cyclical than prior periods. With the growing presence of ecommerce and direct to consumer offerings, the “advertising as the new rent” argument makes sense to me.
While their cash cow (search) is an excellent business that would be hard to displace, other assets like Google Cloud and YouTube are deserving of even higher multiples. Furthermore, the company owns several assets that are under-monetized like maps, Android, and Waymo. Equally as important is the increasingly shareholder friendly posture of the company as exemplified by their improved financial disclosure, increasing share repurchases, and pending share split. At 19x trailing earnings ex. cash on the balance sheet (but inclusive of losses incurred in the fast-growing cloud business as well as other “moon shots”), it is hard to think of a more attractive risk-adjusted return.”
