We recently compiled a list of the Long-Term Stock Portfolio: Best Stocks for 10 Years. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOG) stands against the other long-term stocks.
To select stocks with long-term growth potential, investors should focus on fundamental analysis, evaluating financial health through earnings history, revenue growth, and profit margins. Companies that consistently demonstrate earnings growth and possess a strong competitive advantage are more likely to thrive over time. Investing in dividend-paying stocks is also beneficial, as those that regularly increase dividends indicate financial stability. Identifying stocks in growing industries, such as technology, renewable energy, and healthcare, can further guide investment choices. Diversification across various sectors reduces risk, ensuring that underperformance in one area can be balanced by gains in another. By combining such strategies, investors can improve their chances of finding promising stocks that align with long-term financial goals.
On December 26, Drew Pettit, Director at Citi Research, discussed his long-term investment strategy on CNBC as he looks ahead to 2025, emphasizing a “barbell” approach that balances high-growth stocks with lower valuation names. This is relevant for investors considering a long-term stock portfolio over the next decade. Pettit advocates for pairing mega-cap growth stocks with cyclical and defensive sectors, where fundamentals are expected to improve. He believes that adopting this barbell strategy can enhance portfolio resilience and capitalize on diverse market opportunities.
In the realm of AI, Pettit noted a growing enthusiasm among investors. He highlighted a shift in perception, moving beyond backend applications to include companies that are more customer-facing within the AI value chain. When it comes to specific investments within AI, Pettit expressed a preference for semiconductors over software at this time. He pointed to Marvell Technology as a standout choice, projecting that its custom AI chip business could experience remarkable growth, projected at 200% next year, followed by an additional 60% growth in the subsequent year.
Pettit also discussed his strategy for 2025 and outlined plans to reduce exposure to consumer stocks while focusing on attractive areas within the sector that are less sensitive to interest rates. He highlighted the potential of fintech and payment companies and said that they are well-positioned for long-term growth amid deregulation. Pettit emphasized that his firm’s focus is not on cryptocurrencies like Bitcoin but on traditional payment networks. He expressed concerns about consumer data trends and interest rate changes, advocating for a balanced approach by seeking high-quality stocks less affected by rate fluctuations and recommending key positions such Big Tech for long-term investment.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top blue-chip stocks with a 10-year revenue compound annual growth rate of over 10%. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
A laptop and phone open to Google’s services in an everyday setting.
Alphabet Inc. (NASDAQ:GOOG)
10-Year Revenue CAGR: 18.24%
Number of Hedge Fund Holders: 160
Alphabet Inc. (NASDAQ:GOOG) is a multinational technology conglomerate that serves as the parent company of Google, YouTube, and a diverse portfolio of subsidiaries, including Waymo, a leader in self-driving technology. It has also developed Gemini, a family of advanced LLMs that power its chatbot and enhance AI features in Google Search.
During Q3 2024, the company generated $88.3 billion in revenue, a 15% year-over-year increase. Google Advertising remained the primary revenue driver, contributing over 74% of the total revenue. In response to investor expectations for a strong return on significant AI investments, management is exploring strategies to enhance monetization through AI Overviews and other innovative features.
To elevate the internet search experience, Alphabet Inc. (NASDAQ:GOOG) has introduced AI Overviews. This feature delivers AI-generated summaries at the forefront of search results, integrating text, images, and links to facilitate user access to information. AI Overviews is projected to serve over a billion users monthly and is currently undergoing a global rollout across 100 countries.
The company’s CEO emphasized its progress in optimizing AI Overviews, achieving over 90% reduction in cost per query within 18 months while doubling the scale of its custom Gemini model. It’s fair to say that Alphabet Inc. (NASDAQ:GOOG) is positioned to capitalize on the emerging AI trends.
Despite investor concerns regarding significant capital expenditures related to AI development, RiverPark Large Growth Fund highlighted Alphabet Inc.’s (NASDAQ:GOOG) strong Q3 results, including robust Search and Cloud growth. Here’s what the firm stated in its Q3 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOG): Google was our top detractor in the third quarter despite reporting second quarter results that were generally in line with expectations. The company reported slightly better revenue growth in Search, which grew 14% and continues to be resilient in the face of AI challengers, and Google Cloud, which grew 29% in the quarter. Service operating income margins of 40% and Cloud operating income margins of 11% were also both ahead of investors’ expectations as management’s cost-efficiency efforts drove operating leverage. YouTube revenue growth was slightly below expectations (+13% v. +16%) driven by tougher year-over-year comparisons and some general weakness in the Brand Advertising vertical. Finally, Cap Ex in the quarter of $13.2 billion was more than expected and likely the driver of the weakness in the stock as investors grapple with how much infrastructure investment will be required to achieve Google’s AI goals.
With its high margin business model (44% EBITDA margins last quarter), continued strength across its core Search and YouTube franchises, and continued growth and expanding profitability in its still relatively small Cloud business, we continue to view Alphabet as among the best-positioned secular growth franchises in the market. Additionally, GOOG shares trade at a compelling 19.5x the Street’s 2025 EPS estimate, a discount to the Russell 1000 Growth Index.”
Overall GOOG ranks 3rd on our list of the best stocks for 10 years. While we acknowledge the growth potential of GOOG as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an 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.
