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Topic: Growth Stocks

ALPHABET INC. – Nasdaq symbols GOOG $700 and GOOGL $718

The lower Canadian dollar has made it more expensive to buy U.S. stocks. However, the American market gives you access to the world’s leading companies. What’s more, U.S. dollar investments give you foreign currency diversification.

We feel it’s more important than ever to build a varied portfolio of high-quality stocks. For 2016, we’ve chosen one from each of our portfolios (Aggressive, Conservative and Income). We think all three could post strong gains in the next two to five years.

ALPHABET INC. (Nasdaq symbols GOOG $700 [class C: nonvoting] and GOOGL $718 [class A: one vote per share]; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 687.7 million; Market cap: $493.5 billion; Priceto- sales ratio: 7.0; No dividends paid; TSINetwork Rating: Above Average; www.abc.xyz) is the new parent company of Google’s Internet search business (still called Google) and other operations. Each of these subsidiaries functions independently.

Alphabet is already one of the world’s biggest companies by market cap (or the total value of all of its outstanding shares). You might take this to mean it has limited room for growth.

However, Google still gets over 90% of its revenue from online advertising and is the world leader in that field. Online ads continue to grow and take market share from other forms of advertising.

Separating out Alphabet’s non-Internet-search businesses (which it calls “Other Bets”) will also help the company spin them off and unlock value. They include its Nest home thermostats and Google Fiber high-speed Internet and TV service.

Alphabet’s reorganization will also give investors more information on the company’s higher-risk “Moonshots,” such as self-driving cars and devices that use nanotechnology to detect diseases.

Dividend would broaden its appeal

The reorganization should also make it easier for Alphabet to start paying a dividend. That would increase its appeal among big institutional investors, which tend to avoid non-dividend-paying companies.

The class C stock trades at 20.5 times the $34.13 a share Alphabet will probably earn in 2016. That’s a reasonable multiple in light of its high research spending (15% of revenue), dominant market share and longterm growth and spinoff potential.

Shareholders should keep holding their class A stock. For new buying, we recommend the cheaper class C shares.

Alphabet is our top Aggressive buy for 2016.

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