We recently compiled a list of the 10 Best Fundamental Stocks to Invest In. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOG) stands against other best fundamental stocks.
As per Ameriprise Financial, the broader stock market continued to climb in Q3 2024, despite surprises that occurred on the way. Particularly, the stocks were resilient during September. In July, weaker-than-anticipated jobs data raised concerns that the US labor trends have been slowing faster than expected. As a result, there were worries that the US Fed left the rates too high for too long. Furthermore, in August, an unexpected increase in the rate from the Bank of Japan weighed over the global stocks for a brief period.
Moving forward, the results of the US Presidential election are likely to decide the course of the broader market in 2025. As per Fidelity Investments, the November election outcomes should shape the economic policy debate in 2025. Some of the examples of proposals from the Republican party consist of corporate tax cuts and lower regulatory pressures on some industries, but elevated tariffs and tighter immigration restrictions can be inflationary. Democratic party proposals consist of a focus on increasing taxes to finance public spending.
Fidelity Investments added that the fiscal deficit is expected to remain large over the upcoming several years (6%–7% of GDP), with interest payments grabbing an even larger share of the overall federal budget.
Q4 2024: What Lies Ahead?
Ameriprise Financial believes that, economically, the US consumer and business activity has demonstrated signs of healthy moderation in Q3, with inflation ebbing lower and labor/spending/savings trends slowing but staying firm throughout the quarter. The corporate profits saw a healthy growth in H1 2024 and this trend is likely to continue in H2 2024. The labor conditions are expected to remain healthy. Overall, the investment firm believes that the macroeconomic backdrop might remain strong and supportive for asset prices in Q4, outside of periods of brief volatility.
Another factor that should help companies and broader equities is an expectation that inflation and interest rates are on the path to move lower. After reducing the policy rate by a strong 50 bps in September, the US Fed might cut its policy rate by at least another 50 bps before 2024 ends. The September cut was the first since 2020 and likely concludes an aggressive rate-hiking cycle. As per the Fed projections, the policymakers might continue to cut rates through 2024-end and into 2025, supporting growth and labor moving forward.
While some sort of weak seasonality factors might be visible in Q4, Ameriprise Financial highlighted that S&P 500 managed to deliver an average return of ~4.2% in the fourth quarter since 2000 and an average of ~9.8% over the last 5 years.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
The Case For a Soft Landing
The IMF’s chief economist hinted that the US remains close to achieving a “soft landing” by navigating challenges, such as inflation, without prompting a prolonged recession. While global growth is slowing, the US is still a positive exception. The inflation in the US appears to be easing towards the US Fed’s target, and the labor market, despite some cooling, remains resilient. As per State Street Global Advisors, despite the US election uncertainty and Middle East geopolitical tensions, the US Fed’s dovish pivot and still-solid US economy continue to make the case for a soft landing.
IMF’s chief economist stated that, globally, an inflation picture seems to be coming very close to central bank targets in the course of the next year. Also, several supply-side factors are aiding the US economy, including good US productivity data, and a significant increase in the number of foreign-born workers, which supported spurring growth without driving inflation.
A hand holding a magnifying glass looking over a graph of the US equity market.
Our Methodology
To list the 10 Best Fundamental Stocks to Invest In, we conducted extensive research using Finviz screener and online rankings. To select the stocks, we chose companies with stable and reliable 10-year revenue and net income growth rates. We also mentioned the hedge fund sentiment around each stock, as of Q2 2024. Finally, the list has been arranged in the ascending order of their hedge fund holdings.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Alphabet Inc. (NASDAQ:GOOG)
10-Year Revenue Growth Rate: ~18.3%
10-Year Net Income Growth Rate: ~20.9%
Number of Hedge Fund Holdings: 165
Alphabet Inc. (NASDAQ:GOOG) provides numerous products and platforms in the US, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America.
Wall Street analysts believe that Alphabet Inc. (NASDAQ:GOOG)’s growth momentum is expected to stem from the intangible assets concerning its overall technological expertise in search algorithms and AI, along with access to and accumulation of valuable data for numerous advertisers. Furthermore, its competitive advantages include its network effect, cost advantage, and customer switching costs. The company’s core advertising business remains entrenched in advertising budgets, enabling Alphabet Inc. (NASDAQ:GOOG) to benefit from secular growth in digital advertising spending.
Wall Street analysts believe that the company possesses a significant opportunity in the lucrative public cloud space since Alphabet Inc. (NASDAQ:GOOG) is a key cloud vendor for enterprises looking to digitize their workloads. With autonomous driving gaining a significant amount of traction, the company is the frontrunner of innovation in AVs. On 25th October, Alphabet Inc. (NASDAQ:GOOG)’s self-driving unit Waymo mentioned that it closed a $5.6 billion funding round.
The company released its Q3 2024 results, with consolidated revenues increasing 15%, or 16% in constant currency, YoY to reach $88.3 billion. This growth reflects strong momentum throughout its business. Google Services revenues went up by 13% to $76.5 billion. This growth was due to the strength across Google Search & other, Google subscriptions, platforms, and devices, and YouTube ads. Notably, YouTube’s total ads and subscription revenues exceeded $50 billion over the past 4 quarters for the first time.
JPMorgan upped the price target on the shares of Alphabet Inc. (NASDAQ:GOOG) to $212 from $208, keeping an “Overweight” rating post Q3 2024 earnings. Alphyn Capital Management, an investment management firm, released its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc.’s (NASDAQ:GOOG) solid quarterly performance, with revenue growth of 14% and improved margins improving from 29% to 32%, has been overshadowed by ongoing investor concerns regarding future capital expenditures for AI and antitrust risks.
In August, a federal judge ruled that Google illegally monopolized the search and advertising markets in the United States by using exclusive agreements with browser developers, smartphone makers, and wireless carriers. A second trial is scheduled for 2025 to determine enforcement remedies, with a final decision not likely before 2026, given the strong likelihood of Alphabet appealing any decision. Potential remedies may include making search engine data available to competitors and ending agreements to secure its search engine as a default on mobile devices. For example, Alphabet currently pays $20 billion annually for Google to be the default search engine on Apple products. Although regulatory challenges are never positive, Google’s strong brand and consumer preference have limited the impact of previous restrictions. In Europe, Russia, and Turkey, Google search market share declined by only 2%, 7%, and 12%, respectively, when regulators limited its use as the default option.
Another trial focuses on Alphabet’s Ad Tech platform, where the DOJ alleges that the company has monopolized the digital advertising market. Closing arguments are expected in the coming weeks, and a ruling against Alphabet could undermine Google’s dominance in the online advertising ecosystem. Additionally, after the end of the quarter, Alphabet was ordered to open its Android operating system to rivals, allowing them to establish their own app marketplaces and payment systems to compete with Google Play Store. This followed a loss to Epic Games, the developer behind Fortnite, in a December ruling last year. I will continue to monitor these developments and respond accordingly.”
Overall GOOG ranks 2nd on our list of 10 Best Fundamental Stocks to Invest In. While we acknowledge the potential of GOOG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than GOOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
