Got a hundred bucks you know you won’t be needing anytime soon? Want to do something constructive with it, and don’t mind a little volatility? There’s certainly no shortage of interesting growth stocks to consider. The ultimate growth stock to buy with $100 right now, however, is Google parent Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL).
A painfully predictable pick? You bet. In fact, Alphabet is such a commonly suggested stock that it’s almost become a cliché.
The thing is, clichés usually become clichés for good reason. Alphabet deserves to be a widely owned name, particularly if you’re a new or relatively small investor. Three reasons stand out among the rest.
1. Easy-to-understand businesses
You might be surprised how many investors will take on a stake in a company without fully understanding what that company does. Groupon comes to mind. While most people understand the business model now, they didn’t realize then that charging local businesses to offer — and honor — generous coupons was costing those paying clients more than it was worth to them.
That’s not the case with Alphabet. It’s clear what the company does. It’s first and foremost in the web advertising business, using the massive amount of web traffic that often starts with its search engine Google. GlobalStats’ StatCounter indicates that Google consistently handles more than 90% of the world’s web queries, with billions of people collectively making billions of searches every single day using its portal to the internet. It’s the world’s single busiest website, in fact, while its YouTube is the world’s second-busiest. There’s no ambiguity about how either platform makes its money. If you’re visiting either one, you’re going to see an ad sooner rather than later.
This is important to current and would-be shareholders simply because it allows you to determine why the company might struggle, and then figure out if any headwinds are temporary or permanent.
2. Reliable growth
Alphabet’s struggles are typically temporary, eventually yielding back to the strong growth rates the company’s become known for. You only need to look at the past few quarters to see this pattern play out.
As was the case for most internet-centric companies, Alphabet’s top line ran into a headwind in the early days of the COVID-19 pandemic. Advertisers tightened their purse strings, unsure of what lay ahead. Then this business came roaring back, once advertisers recognized the world was spending even more time online than before.
Then things took a turn for the worse again in 2022 — weakness that lingered into last year. Now crimped by high inflation and economic lethargy, advertisers once again dialed back their spending on web-based marketing, leading to a handful of disappointing quarters during that stretch. The slowdown even led some investors to wonder if Alphabet’s best days were all in the past, with the company finally unable to get and keep people’s attention in a sea of distraction and competition.
That doesn’t seem to be the case at all, however. Google’s ad revenue reaccelerated to a growth pace of nearly 14% year over year for the quarter ending in March, pumping up this arm’s operating income by more than 28%. YouTube’s top line was up 21% as well. These numbers are back in line with the company’s long-term results.
3. Built to last
Last but not least, Alphabet stock is the ultimate growth stock to buy with $100 right now because the kind of growth described above can be sustained indefinitely.
Think about it. Plenty of industries come and go. The web, however, is here to stay. And as long as the internet is around, people are going to need a way of navigating it. Google remains the best all-around means of doing so. Indeed, the term “Google” isn’t just the name of a search engine anymore. It’s taken its place in the global culture’s slang dictionary as the simple way of telling someone to perform a web search on a particular topic… as in “just Google it.” That’s powerful.
Advertisers will also always need a way to promote goods and services, and the web itself remains one of the most cost-effective ways of doing so. That’s not apt to change in the future either.
Oh, and YouTube? It’s not just a curious side project anymore. Ratings agency Nielsen reports YouTube is now serving up more streaming content in the United States than dedicated streaming powerhouses like Netflix and Walt Disney. As long as the world wants to relax and just watch something (which will be forever), crowd-sourced and curated video content platform YouTube will be a great advertising medium as well.
YouTube, by the way, now accounts for about one-tenth of Alphabet’s total revenue.
Alphabet stock is just easy to own forever
Are there higher-growth stocks out there? Sure. As strong as Alphabet’s Q1 growth was, that’s about as well as the company will ever be able to grow. It’s now held back by its sheer massive size. So, just make sure any expectations of the company remain reasonable, rooted in its historical performance.
Alphabet offers investors a clear advantage over many — if not most — of those other options, though. That is, you can buy and comfortably hold it forever without worrying about constantly watching it. That’s a huge benefit in and of itself, in that it allows you to sidestep the temptation of trying to time your entry, or making an exit at what ends up being the exact wrong time.
In other words, it’s less of a “trade” and more of a proven name you can stick with indefinitely. These kinds of picks usually end up paying off far more than short-term speculations do.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.
The Ultimate Growth Stock to Buy With $100 Right Now was originally published by The Motley Fool
