00:00:03 Speaker A
Welcome to goodbye or goodbye. Our goal here to help cut through that noise to navigate the best moves for your portfolio. I’m here now with Washington Crossing Advisors senior portfolio manager Chad Morganlander. Chad, great to see you. Let’s start with what you think is a buy. And this name is Alphabet. Analysts, I got so many analysts on the show Chad. And they’ll say, listen, they they like this name, they’ll say advertising’s resilient. They’ll talk about the cloud momentum, they’ll say healthy margins. But let’s let’s see the reasons you say it’s a buy. We’ll start with bullet point number one, you say strongly positioned for future growth.
00:01:04 Chad
Without a doubt, we think that the search property is going to be layered with AI, that that’s going to continue to grow and be resilient. Also you have Waymo, which obviously is dominating the autonomous driving market. Um and then they have DeepMind, which is the artificial intelligence intelligence backbone, which is really going to run the entire company going forward.
00:01:47 Speaker A
The bullet point number two you say Alphabet’s a buy because search should continue to be resilient.
00:01:56 Chad
Yes, I mean, all you really need to have happen here is to search to grow by 8 to 12% year over year to uh to actually move the stock price higher. The overriding concern is that there’s going to be more competition and that is one of the reasons for the multiple being so compressed.
00:02:31 Speaker A
Final reason you say Alphabet’s a buy power from Waymo, YouTube, DeepMind.
00:02:39 Chad
Yeah, okay. So you have to understand that we’ve got ourselves in a situation where Tesla is valued at over a trillion dollars because of Tesla’s uh big push towards autonomy, as well as robotics. Mind you, Alphabet is actually doing it and they’re successful at doing it at this point. So we think that the valuation for Alphabet is artificially compressed. Also, when it comes to DeepMind, they played the long end of this this long ball kind of game here, where you have chat GPT that perhaps is moving quick and fast to try to break things. Uh we think that the DeepMind team is being more pragmatic about it, that they’re going to embed all of their stuff into their services. And it’s over the long run going to keep this company much more competitive with the likes of Microsoft, as well as with Tesla.
00:04:00 Speaker A
Now those are all the reasons to buy Chad, but before people buy, you know, all pile in, right? Let’s talk about some risks you think they should consider.
00:04:25 Chad
Right. Obviously chat GPT has been uh the bell of the ball and they continue to be that. Uh we think though that if chat GPT was to get into search, that would be the major risk, that the tail risk that we’re talking about here. And then when it comes to regulatory issues, you know, we have in August, which we’re in today, a judge that’s going to come out and try to, you know, perhaps bad news dismantle their browser or whatnot. We think that that’s going to be an extended kind of argument that’s going to be held up in the courts for a couple of years. So we don’t generally think that that’s going to ruin their business model as of yet. And then, of course, you know, the whole thing about not being able to convert their IP durable growth. Back in the 90s, I was acutely aware of how companies like IBM, Lucent Technologies, they had the best internal labs. They were not able to monetize all of that knowledge into real workable products.
00:06:03 Speaker A
All right, so we’re going to buy Alphabet. Let’s get to one you would avoid. You would avoid Robin Hood. Now this one, Chad, most on the street, they still like this name. It has had, I mean, look at the chart. It has had I mean, it’s up 200% this year. It’s up 460% over the past 12 months. Let’s go over the reasons you would avoid it. One company’s valuation silly, Chad, it’s silly.
00:06:54 Chad
Market cap is 100 billion dollars. I’ve we’ve experienced this before back in the 90s with E-Trade and Ameritrade. Uh that doesn’t mean and I don’t want to take away that the company isn’t a well-run company, but what’s going on here is that they’re getting a tailwind from not only day trading because of the retail investor, kudos to them, but also the crypto search. Eventually, that’s going to decelerate, hence the reason why we’re so much more concerned about their valuation. Goldman Sachs market caps 250 to 225 billion. This is 100 billion because of the gamification.
00:08:04 Speaker A
Second reason you would avoid this one, no wide mode relating to competition.
00:08:12 Chad
Yeah, I mean, like the reality is is that Goldman Sachs or Morgan Stanley or others like Charles Schwab could just price them out. This is not as if they just invented another GLP-1 drug. This is a very competitive market environment. And also, one has to keep in mind, the stock market goes up and then goes down because of credit spreads and malfunctioning markets from time to time at 100 billion dollar market cap, you’re really in thosebly territories.
00:09:02 Speaker A
Third reason you wouldn’t you wouldn’t go near this one, let’s look at sensitivity to retail investor base.
00:09:12 Chad
Yeah, like look, I’m not taking away the retail investor into the marketplace and I don’t think that the retail investor is silly money at all. That’s not the case. I think they’re quite wise. It’s just that at one point when you have credit spreads that are so historically tight and equity risk premiums that are so historically low and a crowding of the market and and it’s just a very dangerous spot for the retail investor. And we believe that that can perhaps like the seasons come in and out. So we would just be somewhat more circumspect about this company.
00:10:03 Speaker A
Let’s end here. How could you be wrong, Chad, on Robin Hood?
00:10:13 Chad
Well, how could I be wrong? Uh well, valuations have to come down considerably for us to be more mindful about buying it. Um I would have to say that perhaps as a surge, a continued surge of equity enthusiasm. I don’t think we’re right now the top of the market in regards to what it was like in 1999. Maybe we’re 24 months away from it. Remember, the S&P got to 33 times, we’re at 24 times now. So there could be some more speculative fervor before there’s a reversal of that.
00:11:18 Speaker A
All right. By Alphabet, avoid Robin Hood. Thank you, Chad. Thank you all for watching. Goodbye or goodbye. More market domination coming right up.
