Alphabet Inc. (GOOGL)| Daily Alert June 23
Alphabet has rallied nearly 39% in 2021, but the stock remains one of my top picks for year-ahead gains.
The company increased earnings per share 49% and sales 18% for the 12 months ended March, while operating cash flow grew 35% and free cash flow jumped 75% to $50.74 billion.
Encouragingly, Alphabet has reversed the steady slide in operating profit margin, which had contracted in 11 straight quarters before rising in the last three quarters. The future may look even brighter, with analysts calling for 49% higher earnings per share in 2021 on revenue growth of 29%.
The stock trades at 28 times estimated 2021 earnings, in line with its industry median. Excluding net cash of $156 per share reduces Alphabet’s current-year P/E to 26. Alphabet is a Focus List Buy and a Long-Term Buy.
Richard Moroney, CFA, Dow Theory Forecasts, dowtheory.com, 800-233-5922, June 17, 2021
Nuance Communications, Inc. (NUAN) | Daily Alert June 24
Nuance was an early pioneer in voice recognition technologies and has gone through numerous phases in its evolutionary path. Today, Nuance develops conversational AI solutions that can understand, analyze, and respond to human language. It has a market cap of $15.7 billion.
In recent years management has focused on growing within Nuance’s two strongest markets—Healthcare Solutions and Enterprise Solutions—as well as migrating to the cloud, new product development and international expansion.
Looking forward, Nuance is entering the next big phase of its evolution as it prepares to become part of Microsoft (MSFT). Microsoft announced the acquisition back in April. It was attracted to Nuance because the acquisition will help Microsoft build out Microsoft Cloud for Healthcare (MCH) solutions. More specifically, Microsoft can leverage existing healthcare integrations and develop new AI capabilities using existing data on Azure. Management sees a doubling of its healthcare addressable market (to $500 billion) by bringing Nuance into the fold.
For investors, news of the buyout was welcome. NUAN was trading near 45.5 prior to the announcement, then shot up over 30% to an all-time high of 54 on the news. The stock recently added a few more points because the deal just passed antitrust approval. NUAN now trades just below 55.
Current NUAN investors should hold their shares only if they wish to own stock in MSFT, which should be a core holding in every investor’s portfolio. For new investors, there is no reason to buy NUAN. It makes more sense simply to buy MSFT directly.
Tyler Laundon, Cabot Early Opportunities, cabotwealth.com, 978-745-5532, June 11, 2021