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Consider Alphabet Stock Even in a Recession

After six straight red weeks, the bulls may rejoice with two consecutive green days. This is where the fear of missing out kicks in for most investors and they blindly jump back in. Today, we will contemplate the prospects of doing so with Alp…

After six straight red weeks, the bulls may rejoice with two consecutive green days. This is where the fear of missing out kicks in for most investors and they blindly jump back in. Today, we will contemplate the prospects of doing so with Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) stock. But first, we should discuss the bigger picture of the market.

The macroeconomic conditions are great. You won’t hear experts say this, but it is true. In fact, there was such a surplus of cash that it created a hotbed for inflation. This is why the Federal Reserve (Fed), who contributed heavily to inflation, launched the quantitative tightening (QT). The reason why experts are now calling for disaster is the rhetoric from the Fed. Judging by their statements, they are out to control inflation even at the threat of destroying the economy.

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In reality, GOOG stock will survive a few rate hikes. But investors will be shy about risking money if they think a big recession is coming. The anticipation will actually do damage, even if the company prospects are still strong.

Ticker
Company
Price
GOOG
Alphabet Inc.
$2,202.40

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GOOG Stock Recession Is Due to Extrinsic Reasons

The current state of GOOG stock is less than ideal. Even after a 15% rally, it is still 22% below its February highs. These are conditions that Wall Street deems as recessionary. Yet, their financial statements do not yet reflect evidence of the current blight. This suggests that what’s ailing it now is investor perception that things will worsen.

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I don’t blame retail investors for feeling this anxiety. This week, even market experts like Jamie Dimon are panicking from the QT program. These are the pragmatic experts that us mere mortals look to for guidance. If they are panicking, then it is understandable that investors may stop buying.

To overcome this potential source of worry, I resort to simple logic and a bit of homework. First, I cannot see any hint of trouble in Alphabet’s financials. Revenues are still growing at a healthy clip. Its net income doubled since 2019, after doubling back then, as well. Last year, it generated more than $90 billion in cash from operations.

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The astonishing part is that they did this while maintaining the proposition of value. The price-to-earnings (P/E) ratio now is only 20, which is its lowest P/E ratio in at least seven years. Therefore even if we suffer another dip, the value will lend support and make it shallow. Current investors of GOOG stock have realistic expectations. They might throw a small fit here and there, but overall, they should be solid.

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Bottom Line on GOOG Stock

So far, I sound like someone who is ready to load up on GOOG stock. However, I must acknowledge the extrinsic factors we noted. There is also the matter of the war in Ukraine, which could deteriorate drastically. While I don’t expect much to worsen from that or on the Fed front, I respect the threats. As long as the CBOE Volatility Index is this high, we should expect anything.

If that’s the case, then taking full positions at once would be reckless. An easy way to mitigate new position risks is by portioning the orders. Spreading the entry point across time affords investors the opportunity to moderate their cost basis. Before you discount the technical clues that exist in the charts, consider the following notion.

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Click to EnlargeSource: Charts by TradingView

Last month, I wrote about this same opportunity when Alphabet was around this level. My chart today proves my point about having buyers with strong conviction. I have included picture of my chart from a month ago. In it, I identified where the support lies and it acted perfectly on cue.

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Currently, GOOG stock is approaching $2,400 per share. That’s a zone that should present some resistance. It would be healthy for it to pull back to $2,260 to gather better momentum. Otherwise, the rally will become long in the tooth and vulnerable to more violent dips. Emerging from a strong base insures proper footing. I propose that investors who would buy the dip have more conviction. As a result, they would be harder to shake out on bad days.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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