The decline of 32.8% is extreme, particularly given the positives surrounding Alphabet. While ad revenue may take a hit because companies have a shrinking marketing budget for the time being, do you think there is more or less online searches occurring right now? How about more emailing, YouTube viewing or online-related tasks with millions in quarantine?
Even if none of that were true, and Alphabet doesn’t benefit at all from the coronavirus reaction, let’s not forget that sometimes a company wins by playing great defense instead of offense.
For years, Alphabet has roared higher thanks to its impressive revenue growth and fat profit margins. While that "offense" has done wonders for the stock price, it’s also created a powerful "defense" in its balance sheet.
In fact, Alphabet has one of the strongest balance sheets in the entire market. As of the most recent quarter, the company had $119.6 billion in cash and short-term investments on hand. Current assets of $152.5 billion were more than triple current liabilities of $45.2 billion, while Google carries just $3.9 billion in long-term debt.
This company will be just fine, which is why it’s a buying opportunity for long-term investors.
Investors had been waiting for more than a year to see a breakout in Alphabet stock. When shares cleared the $1,295 mark and then held this area as support in the fourth quarter of 2019, investors knew the move was for real.
It kickstarted a rally up to $1,500 per share, with shares rallying for eight straight weeks at one point and in 10 out of 12 weeks before topping out. It took just a couple of weeks to unwind those breakout gains, then just two more weeks to send shares plummeting to $1,050 a share. Brutal.
From peak to this week’s trough, shares shed 32%. However, that’s an opportunity in my view.
With the decline, Alphabet stock tested its 200-week moving average for the first time in years. That came into play at $1,053. Should it be retested in the coming days or weeks, aggressive bulls may consider nibbling or adding to their long position.
Should shares deteriorate further, support should come into play between $980 and $1,000. This level was resistance in 2017 before giving way to a powerful breakout later in the year. It has since been strong support, last buoying Alphabet in the late-2018 selloff. This is the level where bulls may consider being strong buyers.
On a rebound, I want to see if Google can reclaim $1,200, and possible the breakout level near $1,295.