This One Investment Is in My Portfolio for the Long Haul Smart Change: Personal Finance

(James Brumley)

Nobody loves hunting for the next great story stock more than I do. But let’s face it — too many of these companies never live up to the hype. The market’s obvious names usually end up being the workhorses of most portfolios.

With that as the backdrop (and while the market is deep in the red), here’s a closer look at one of the few names I intend to hold forever. You may want to consider adding it to your collection of long-term holdings as well. That’s particularly the case given that this stock not only followed the market lower since November’s high, but it has led a bearish charge with its 26% rout.

That stock is Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG).

Image source: Getty Images.

Practically unstoppable

Older companies with their best growth years behind them aren’t everyone’s cup of tea. I get it. The search engine/advertising market may be at or near its maximum potential, as evidenced by years’ worth of inconsistent “per click” rates. Throw in the fact that Amazon now poses a threat to Alphabet’s ad business and the bullish case further weakens. In the meantime, Alphabet’s YouTube is also losing share to a myriad of new, free streaming platforms.

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Except, Alphabet is a cash cow regardless of the internet-advertising market’s maturity. Led by its ad business, in only two quarters since 2010 has the company posted lower year-over-year revenue, and one of those times was the second quarter of 2020, when the COVID-19 pandemic first started to rip across North America. Moreover, it shut down that sales lull just one quarter later.

Data source: Thomson Reuters. Chart by author. Revenue data is in millions of dollars.

It’s not difficult to figure out why Alphabet is such a reliable grower when it seems like it shouldn’t be: The world is stunningly reliant on the internet, and increasingly so.

A report by data analysis firm DataReportal says there are now 4.95 billion regular internet users on the planet, up from 2021’s tally of 4.66 billion. That means there are still about 3 billion more people who could eventually gain access to and then use the web. And like most of the internet’s existing users, newcomers are apt to choose Google as their preferred search engine. Global Stats’ StatCounter indicates Google accounts for 92% of the search market and Internet Live Stats says they generate more than 8.5 billion web queries every single day.

That’s more than a business. Google is a cultural fixture that also happens to be a tollbooth.

Some will argue that the world’s shift away from desktops and toward mobile devices like smartphones works against Alphabet, and in some regards that’s true. However, Global Stats estimates that Alphabet’s Android is the operating system installed on more than 70% of the world’s mobile devices, still giving the company significant control of how those users utilize their devices. Notably, Alphabet readily steers the 3 billion people using Android toward the company’s app store, Google Play, and for most smartphone manufacturers licensing Android, Google and Google’s Chrome browser are the default search engine and browser options, respectively.

These little things add up to make the company more than a means of connecting to and then navigating the entirety of the web.

Even Alphabet’s YouTube is more than a mere platform. The video repository boasts more than 2 billion monthly users, who collectively consume more than a billion hours’ worth of digital video every day. Indeed, for 35% of YouTube’s US users, Google’s President of Americas and Global Partners Allan Thygesen recently explained, it’s the only video platform they tune into. That’s a pretty powerful reach even if more free, on-demand video options like Peacock or Pluto TV are starting to chip away at YouTube’s share of the ad-supported video market.

Digital platforms sidestep most inflation risks

Alphabet isn’t the only company of this ilk, mind you. I’d argue that Amazon’s super-simple shopping service is another revenue-bearing lifestyle platform that consumers support without a second thought. Walmart is similarly cemented into shoppers’ psyches, and if you gave it some thought, you’d be sure to find more.

For me, though, Alphabet is the go-to stock for one particular reason. Whereas Walmart and Amazon are both fighting with high costs now and will certainly face that headwind again in the future, Google, YouTube, and Android are digital platforms that cost relatively little to share with the public. Advertisers and licensees ultimately foot the bill. Alphabet’s rates are simply set somewhere above the company’s costs. It’s not always great pricing power, but until the world’s ready to abandon its addiction to the internet and all it offers, it’s always enough pricing power.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet (A shares). The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy.


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