Billionaire hedge fund managers don’t achieve their status by making poor investment decisions. They tend to avoid the hottest growth stocks, which can be quite volatile and mess up overall returns if they plunge. Instead, many focus on larger companies that they think could rise in value.
One of the more popular investments lately has been Alphabet (GOOG -0.19%) (GOOGL -0.17%). This stock was a popular buy during the third quarter, as many billionaire hedge fund managers, like Israel Englander (Millenium Management) and Steve Cohen (Point72), scooped up shares. It’s also a top holding in other hedge funds, like Chase Coleman at Tiger Global Management, where Alphabet makes up 7.3% of the portfolio.
With Alphabet being such a popular stock among billionaires, could it help accelerate your path to becoming a millionaire?
Alphabet stock is being discounted due to some breakup concerns
Unless you have a sizable investment account, it’s unlikely that holding Alphabet stock alone will make you a millionaire by itself. Instead, investors should be looking for a company that can beat the market, which will speed up their pace to becoming a millionaire as part of a portfolio of stocks.
Alphabet could help you alone this path, as its businesses are doing quite well.
Alphabet’s primary business is advertising, which is largely centered around the Google search engine. Although it also generates ad revenue from other properties, like YouTube, about three-fourths of its ad revenue comes from the search engine. This could become an issue in the near future, as the Department of Justice is seeking to break up Alphabet by forcing the sale of its Chrome browser.
The breakup calls are the result of a judge’s ruling that Google had an illegal monopoly in the search space. However, this isn’t the end of the story for Alphabet. It can still appeal the ruling, and the judge isn’t expected to make a decision until next summer. Some analysts also believe the incoming Trump administration could alter the DOJ’s stance in the case.
In the meantime, Alphabet is likely already planning how it can maintain its advantages even if it’s forced to get rid of its Chrome browser.
These worries have contributed to one of the key investment points of Alphabet’s stock: It’s significantly undervalued compared to the broader market. The S&P 500 trades at 23.5 times forward earnings. Alphabet trades for just 20.9 times forward earnings.
This is the market telling investors that Alphabet is not worth as much as an average business, yet its performance is far above average.
Alphabet’s growth rate is far from average
In the third quarter, Alphabet’s revenue rose 15% year over year to $88 billion. On the profit side, its operating margin increased by 4 percentage points to 32%, helping boost earnings per share (EPS) from $1.55 last year to $2.12 this year — a 37% rise.
Those kinds of growth figures aren’t associated with a company that trades at a discount to the broader market, yet that’s where Alphabet trades. Additionally, Alphabet’s 2025 also looks solid. Wall Street analysts project 12% revenue and earnings-per-share growth. So, next year should also be another market-beating year, as its growth rates exceed that of the long-term average of the S&P 500.
Alphabet isn’t going to be a stock that lights the world on fire. But it is one that produces solid growth and can be purchased for a bargain price. With many investors’ portfolios starting to fill up with high-growth AI stocks, it’s smart to balance that out with some steady businesses. Alphabet could fit that description for many investors, making it a great stock to own for nearly any investor.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
