In the blink of an eye, the stock market is heading into the final stretch of 2017. Stocks made like the Energizer Bunny this year to keep going and going and going despite the choir of pundits declaring they’re overvalued. How should you position your portfolio now? I asked five financial pros to share their best investing idea for the fourth quarter.
Investing in Alphabet offers exposure to high-growth industries : mobile software, online video, smart homes, self-driving cars, artificial intelligence, and online mapping. To put peanut butter on the chocolate, Alphabet’s subsidiaries are the leaders in each: Android, YouTube, Nest, Waymo, Deepmind, and Google Maps.
“Alphabet investors today are primarily investing in the online search advertising business by buying their stock,” said Daniel Beckerman, CFP®, ChFC®. The founder of Beckerman Institutional oversees $70 million in assets in Ocean Grove, N.J. “However, I see this changing over the years as their other segments’ revenue growth has been far outpacing the percentage growth of their traditional search revenue.”
Beckerman added: “Many investors have speculated that Youtube alone could be worth over $80 billion dollars and significantly more valuable than Netflix. Alphabet also is making thoughtful long-term investments within its Google Ventures division in the disruptive industries of data analytics, robotics, and biotechnology — amongst others.”
Google and Youtube hail as No. 1 and No. 2 most visited websites on the planet. Ten of Google’s websites — Google India, Google Japan, and Google UK — rank in the top 30 globally.
Even though Alphabet shares have grown exponentially from around $50 (split adjusted) at its 2004 initial public offering to over $900 this year, you haven’t missed the boat, says Beckerman.
“Just as impressive has been the consistency of their revenue growth even as they have become one of the largest companies in the world,” said Beckerman. “Alphabet trades at shy of 24 times next year’s earnings, which is a reasonable valuation given their high profitability and consistent double-digit growth.”
The company is worth $655.3 billion and has some $9 billion in cash. It could take advantage of stock market sell-offs and gobble up other companies at bargain prices.
“Most people would not think of Alphabet as being shrewd,” said Beckerman. “But consider that they hired Ruth Purat — quite a conservative choice for their CFO — and they hold a larger cash ratio even than Warren Buffett typically holds onto at Berkshire Hathaway.”
Beckerman owns class A shares of Alphabet, which trades with the ticker GOOGL and come with voting rights. Class C trades under the ticker GOOG and costs about 2% less. Beckerman believes Alphabet will be the next Berkshire Hathaway, which change hands at more than $270K.
A bargain can be had with the world’s largest steelmaker with a presence in 60 countries, ArcelorMittal, considering rising steel prices and China’s plans to reduce steel output, says Andrew Almeida, CFA, CFP®, of Almeida Investmentsin Islandia, N.Y. The stock is trading below book value and at 8 times earnings. The S&P 500, by contrast, trades at 25 times earnings.
“They have undergone significant deleveraging over the last two years to improve their financial position and benefit from the turnaround in materials prices,” said Almeida.
“From a technical perspective, I look at the money flow index (MFI) to evaluate if the volume is supporting price momentum in the stock,” he added. “An MFI of 80 would be supportive of overbought territory and a value of 20 would suggest a stock is potentially oversold. MFI for ArcelorMittal is approximately 45. I think now is still a great time to get in.”