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- Manlobbi
Stocks A to Z / Stocks D / The Walt Disney Company (DIS)
No. of Recommendations: 15
I don't think Alphabet is cheap at today's price of $160.
But, I think it has fallen enough that it isn't overvalued, if you believe in the business model for a while yet as I do. I could live with this entry, though of course I'd like to do better.
I wrote a few puts today, which were unusually remunerative given the slight panic in the market. If they're assigned, I figure I'll just keep the stock. I have a core long term position that makes me happy, but it isn't as big as I wish. I think the net entry price on this new position (strike minus premium) may get me a double digit return in the next coupla/few years. It works out to almost exactly 17 times consensus earnings for next year, which I think is pretty good for this firm. Numbers like 25 seem to be more common.
If they aren't assigned, it's a 22.1%/year rate of return on the incremental cash committed, in addition to the 4.9%/year I'm already earning on that same cash, total 27%/year rate till around year end.
As a bonus, since I don't know which outcome I'll get, there is an extra entertainment value to the position.
Jim
No. of Recommendations: 1
More weakness, but with GOOG at $160.39 I'm seeing the Dec 160's mid-price of $9.38. Nice entry point but certainly not 22%. Need more panic...
Rgds,
HH/Sean
No. of Recommendations: 4
More weakness, but with GOOG at $160.39 I'm seeing the Dec 160's mid-price of $9.38. Nice entry point but certainly not 22%. Need more panic...
I was pretty lucky with my entry last week. For option writers, VIX at 60+ is like shooting fish in a barrel, but you probably won't want to wait for the next such day: they're pretty rare. The options I wrote that day are (surprisingly) profitable at the moment despite the stock price being lower now than when I wrote them.
Jim
No. of Recommendations: 3
Nice! I added a bit of GOOGL $159.75 this week. I like their position and areas of focus for 3/5/10 years and it’s forward PE is 21, similar to the S&P index. Price reaction seems overdone (nearly 17% off its high), and The Final outcome on these issues will be dragged out for years and years after all of the appeals.
No. of Recommendations: 9
The Final outcome on these issues will be dragged out for years and years after all of the appeals.
I don't really know what will happen, but there is one thing unusual about this specific replay of the old story:
The most likely single "punishment" will be that Alphabet be forced to stop paying Apple and Mozilla tens of billions to have Google as the default search engine. If they s top paying that out, the short to medium term result is that profitability will go up. That might be good for the price, though it's hard to say what effect (if any) it will have on the long run market share.
Net profit reported in 2021 was $76 billion. That year they paid out $26.3 billion in fees to be the default. Though not likely, it's not inconceivable that net profits could rise by a quarter while the lawyers duke it out.
Jim
No. of Recommendations: 0
Google is a great company, but its mktcap is already in trillions. It needs to come up with billions of new profit to maintain its growth. In California, they hired all those people working on all sort of projects hoping one of those will be a new gold mine. Why do people think Google can still keep growing at such a huge size. It’s hard, imo, but I have been wrong for so long :)
No. of Recommendations: 1
Net profit reported in 2021 was $76 billion. That year they paid out $26.3 billion in fees to be the default. Though not likely, it's not inconceivable that net profits could rise by a quarter while the lawyers duke it out.
Is it clear that they are going to stop paying prior to a judgement?
tecmo
...
No. of Recommendations: 4
Is it clear that they are going to stop paying prior to a judgement?
No, they certainly won't stop paying until somebody tells them they have to, unless they themselves decide it looks bad (highly unlikely). But that might well be just the first step in a long series of court cases and additional/alternative changes. In the case of IBM, it was about 13 years. Microsoft's was quicker...roughly, investigation started 1994, charges 1998, judgment 2002.
Jim
No. of Recommendations: 3
Now below $149. I believe Rockefeller's comment about the breakup of Standard Oil also applies to Google but the animal spirits seem to be against the company now so I'm not yet tempted to buy. Maybe dip a toe in?
Rgds,
HH/Sean
No. of Recommendations: 0
I sold some BRK and GOOGL is a target for that capital. At $150 is looks "fine" but not table pounding level. $125 gets me much more interested.
Note: Look at the Costco thread on this channel if you are thinking of following my advice :(
tecmo
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No. of Recommendations: 1
A data point:
Nov 19, 2021 : $149.95
As others point out, buying at rich valuation levels has a huge impact on forward returns...
tecmo
...
No. of Recommendations: 8
As others point out, buying at rich valuation levels has a huge impact on forward returns...
Indeed. Even having a very rough idea of where the value sits is a lot better than no idea. So, a rough idea:
FWIW, I have found Alphabet's price to sales ratio worth watching as a quick gauge, as their margins are somewhat variable. The "fair" P/S ratio should definitely glide down over time, but in recent years entry prices under 6 have generally worked out pretty well in a reasonable time frame. (e.g., if cyclically adjusted net margins are 20-25%, P/S of 6 is 24-30 times trailing earnings. If they manage 20%/year EPS growth for three more years, it's a P/forward-forward-forward-E of 13.9 to 17.4)
The current P/S figure of around 5.83 is not nearly as attractive as the lows in the 4-5 range in the winter of 2022-2023.
But it's about the same P/S as in March 2020, which worked out very well. Also similar to May-August 2022 which worked out well but only if you held over a year. And pretty similar to its range 6-12 months ago, which worked out well as long as you held only until the peak around July, OR you're still holding till whenever the next high price comes around.
I added to my relatively small long term position recently, and plan to add more on the way down. I don't expect a huge price rebound any time soon this time. The legal challenges are likely to have a long and winding road for years--keeping prices perhaps somewhat depressed on average and perhaps news-reactive for a while. But as long as the underlying business is printing money, of which I have no doubt, good outcomes will arrive at some point.
Jim
No. of Recommendations: 4
Indeed. Even having a very rough idea of where the value sits is a lot better than no idea. So, a rough idea:
I think they can get to $350B in revenue, so a 6x multiplier on that would be $2.1T in market valuation - roughly 13% higher than current levels.
EPS might be $8.75 / share, a 20x multiplier on that is $175 / share; roughly 16% higher than current levels.
Nice but not table pounding value... I would put 6x and 20x as the lower-midpoint on the valuation multipliers; probably more upside than downside from those levels.
tecmo
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No. of Recommendations: 7
Nice but not table pounding value... I would put 6x and 20x as the lower-midpoint on the valuation multipliers; probably more upside than downside from those levels.
That sounds sensible. And even those numbers are far from conventionally cheap.
In my mind the attraction comes more from the resilience of the future profit stream. I don't think it matters much if governments come down on them and they are forced to divest or spin off businesses--it just becomes a sum-of-parts valuation. History is not a perfect guide, but other companies in this situation have treated patient investors very well on average in the last century: when they come after you for being an obscenely profitable near monopolist, it's usually true. That's terrible for consumers but a great thing for investors, and the imposed remedies never seem to remove that quality very effectively. If you owned Standard Oil in 1911 and instead ended up with holdings in the 34 post-breakup entities, you did just fine.
So no, not table pounding, but I believe it is probably a slightly better than average entry level for a long term coffee can holding. I added more yesterday with that in mind and I expect to add more if/as it falls more.
Jim
