We recently compiled a list of the 7 Cheap Internet Stocks To Invest In Now. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against the other cheap Internet stocks.
What’s Happening with China’s Stock Market
Recently, China’s stock market has seen a sharp rally, driven by some aggressive measures by the government to revive the economy. China is the world’s second-largest economy and one of the key players in the technology industry. This huge economy has faced a series of challenges for the past few years in the shape of a sharp property market downturn and a lack of consumer confidence.
The government measures include interest rate cuts and liquidity injection into the market. On September 24, Reuters reported China’s central bank cut bank reserve requirement by 50 basis points and it also reduced interest rate by 20 basis points to 1.5%. Moreover, the bank also plans to issue 2 trillion yuan in special sovereign bonds.
These measures resulted in the CSI 300 index trading higher. The index closed 4.5% higher after the announcement whereas the Hong Kong Index gained 3.6%. This move by the Chinese central bank is said to have a positive effect around the globe. Analysts in the United States are already discussing the news as “China Boost”. While many analysts are calling this boost to be short-lived, others are confident that this is a positive mood and will benefit the market in the long term.
David Tepper, Appaloosa Management founder and president and Carolina Panthers owner joined CNBC for an interview recently to talk about the global impact of the Chinese stimulus.
While drawing a comparison between the Chinese and the United States stock markets, Tepper pointed out that Chinese stocks have been trading at single-digit multiples with earnings expected to grow in double digits for major stocks at least. On the other hand, the United States S&P average is sitting at more than 20 times.
Tepper believes that China has exceeded expectations with the recent move and while quoting the government officials of China he pointed out that they are willing to do more if needed. He further emphasized that the central bank is encouraging buybacks of stocks and they are even lending money to do that at very cheap rates. This is an internal stimulus that is going to encourage consumption and Tepper believes that the Chinese government is doing everything it can to revive the economy.
While talking about the global impact of this move, Tepper mentioned that the European market is already making cuts, the United States market has seen one cut already with more expected during the year, and with the Chinese making cuts Japan is expected to follow suit. Tepper thinks this is a very good scenario for undervalued stocks in China and around the world in general. As an American investor as well, Chinese stocks look cheap when compared to the market average. Moreover, Tepper thinks that the United States is not a cheap market currently, he thinks it is slightly overvalued. Though it is a tough comparison, if you compare the price-to-earnings ratio of global stock markets, the United States will find itself slightly overvalued.
Our Methodology
To compile the list of 7 cheap internet stocks to invest in now we used the Finviz stock screener and ETFs. Using these sources we aggregated a list of 15 internet stocks. From these stocks we selected stocks that are trading below the Forward Price-to-Earning ratio of 23.98 (the market’s forward P/E as per the Wall Street Journal) and earnings expected to grow during the year. Once we had the list of cheap internet stocks, we then ranked them based on the number of hedge funds that held stakes in them in Q2 2024, which we took from Insider Monkey’s database of over 900 hedge funds. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? 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 user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Forward P/E Ratio: 21.14
Earnings Growth This Year: 31.90%
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is one of the leaders when it comes to internet stocks. At its basics, the company is an international technology hub with operations running in cloud computing, internet search, artificial intelligence, software development, and hardware as well. Its search engine Google has gone on to become a synonym for internet search engine.
While Google continues to maintain it’s market-leading position with more than 91% market share, Alphabet Inc. (NASDAQ:GOOGL) is continuously developing its AI technology. The company has launched its large language model Gemini to compete in the generative AI race. And has plans to invest more than $50 billion in AI development. The company also runs YouTube, which is a video streaming platform.
Apart from this, its cloud business is also soaring with more than 60% of GenAI startups using its Google Cloud. The cloud revenue of the company grew 28.8% year-over-year during the second quarter of 2024. Overall, Alphabet Inc. (NASDAQ:GOOGL) was able to grow its revenue by 14% to reach $84.7 billion.
By the end of the year, management anticipates the company’s revenue to reach $100 billion. What’s truly impressive is its cheap valuation. GOOGL is trading at a forward P/E of 21 and analysts expect its earnings to grow by 32% during the year, making it one of the cheapest internet stocks to invest in now.
Patient Capital Opportunity Equity Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
Overall GOOGL ranks 1st on our list of the cheap Internet stocks to buy. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock 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.
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