Uncovering the Hidden Gem of the “Magnificent Seven”
The “Magnificent Seven” group of stocks, coined by CNBC’s Jim Cramer, has led the market in recent years. Among these market leaders, one stock stands out for its undervalued price and impressive growth potential: Alphabet.
A Cheaper Alternative
Alphabet, the parent company of Google, boasts a price-to-forward-earnings ratio of just 22 times, making it the cheapest member of the “Magnificent Seven” and even cheaper than the broader market. This valuation discrepancy presents a unique buying opportunity.
Advertising: The Backbone of Alphabet
Advertising is Alphabet’s most significant business segment, accounting for 75% of its revenue. Although advertising isn’t a huge growth driver, it provides a strong foundation for the company to invest in other areas. In Q3, ad revenue rose 10.4% year over year, demonstrating the segment’s stability.
Google Cloud: A Rising Star
Google Cloud, Alphabet’s cloud computing wing, is growing rapidly, with revenue increasing 35% year over year. Its operating margins have also improved significantly, reaching 17%. This growth can be attributed to the increasing demand for artificial intelligence (AI) solutions, which Google Cloud’s platform is well-equipped to provide.
Impressive Q3 Performance
Alphabet’s Q3 performance was outstanding, with revenue rising 15% year over year and operating margins improving by four percentage points to 32%. This led to a 37% gain in earnings per share, outperforming other “Magnificent Seven” stocks like Microsoft and Apple.
Undervalued and Underappreciated
Despite its impressive performance, Alphabet’s stock trades at a significant discount to its peers. If it were valued similarly to Microsoft, its market capitalization would be over $3.17 trillion. This undervaluation, combined with its strong growth potential, makes Alphabet an attractive investment opportunity.
A Top Pick Among the “Magnificent Seven”
With its cheap stock price and robust growth prospects, Alphabet is well-positioned to outperform the market in the coming years. It’s a top pick among the “Magnificent Seven” stocks, offering investors a unique chance to capitalize on its undervaluation.
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