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Motley Fool: Alpha-bet on this one

Alphabet stock appears already discounted for regulatory risks, and long-term investors should take a closer look.  (Associated Press)
Alphabet stock appears already discounted for regulatory risks, and long-term investors should take a closer look. (Associated Press)

Some tech giants are so big that regulators are looking to break them up. Google parent company Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) is a prime example.

Even if it’s broken up one day, though, long-term shareholders could come out ahead because the total value of Alphabet’s parts may be greater than the whole.

Several of Alphabet’s businesses can stand on their own – and likely could compete well against rivals. If Google Search were its own business, it would still dominate searches. If YouTube were its own company, it would have a lot going for it, as it’s the world’s most-watched internet streaming app and a social network, and it offers subscriptions to music and video, too. Google Cloud is the third-largest public cloud service provider, and though it’s not yet profitable, it’s getting there.

Plus, Alphabet is cash-rich, with cash and short-term investments worth nearly $140 billion as of the end of 2021. This kind of war chest could provide lots of funding if the company’s individual entities were set free.

Alphabet shares recently traded at a price-to-earnings (P/E) ratio of around 21, well below its five-year average of nearly 34 – an attractive level for a company whose 2021 revenue grew 41% year over year. The stock appears already discounted for regulatory risks, and long-term investors should take a closer look. (The Motley Fool owns shares of and has recommended Alphabet.)

Ask the Fool

Q: Where should I look for estimates of various companies’ upcoming earnings? – L.R., Carson City, Nevada

A: You’ll find analysts’ projected earnings at sites such as Yahoo! Finance. (Look up companies via the “Quote Lookup” search box, then click on “Analysis” on the company’s data page.) But don’t put too much importance on the numbers you see there.

Remember that estimates are just that – estimates. Very often, they’re partly or largely based on guidance and information from the company itself. So a company could lowball its guidance, making it easier to exceed expectations when reporting results.

Publicly traded companies in the United States report on their performance and financial health in quarterly reports (“10-Qs”) and an annual report (a “10-K,” providing a much deeper dive). Instead of focusing on analysts’ estimates, review each report closely yourself, noting trends, growth rates and any red flags you might see (such as surging debt).

Also check each company’s “investor relations” page: Many companies hold conference calls on their results each quarter.

Q: I have holdings in several dividend-paying stocks, with dividend yields ranging from about 3% to 8%. The companies all seem to be performing well, so I’m thinking of selling the low-yielders and buying more of the high-yielders. Should I? – M.C., Sioux Falls, South Dakota

A: Don’t put too many eggs in too few baskets. Even seemingly solid companies can surprise you with bad news and dividend cuts.

Also, consider dividend growth rates. If you plan to hold these shares for many years, the companies with low current yields might be growing rapidly and might increase their payouts substantially in coming years, eventually paying more in dividends than the current high yielders are paying.

My dumbest investment

My dumbest investment was not pulling the trigger and buying shares of Apple at $12 apiece. I had $10,000 burning a hole in my wallet and got talked out of buying it because “Apple is going to be out of business very soon.” Argh. – A.C., online

The Fool responds: First off, if someone is giving you financial advice, find out how savvy and trustworthy they are, and whether they have any conflicts of interest.

Next, think back and ask yourself what your rationale was for buying into Apple – and what your naysayer’s reasoning was. There will always be arguments for and against buying particular stocks, and you need to do your own thinking and deciding.

(Those who don’t feel comfortable or confident deciding to buy or sell individual stocks can still do very well just investing in a low-fee, broad-market index fund, such as one that tracks the S&P 500.)

Here’s some consolation: You may have missed a big opportunity, but you didn’t actually lose any money on Apple. Also, in years past, the phenomenal performance ahead of Apple wasn’t so crystal clear. You may have suspected it would do well, but there was always a chance it wouldn’t.

Next time you’re on the fence about a stock, perhaps due to a naysayer raising valid concerns, you might split the difference and buy some shares, but not all the shares you originally planned to buy.

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