Alphabet reported excellent earnings, but the stock has been hit because the company projected higher expenses.
There is quite a contrast between how investors treat Amazon AMZN, +1.40% and Alphabet GOOG, -0.07% GOOGL, -0.31% Investors love Amazon when it says it is going to spend more money, but they don’t feel the same way about Alphabet’s spending. Interestingly, Netflix NFLX, +1.41% gets a reaction somewhat similar to Amazon, but Facebook FB, +0.79% and Apple AAPL, +1.56% get a reaction somewhat similar to Alphabet.
Does this different treatment make Alphabet a better investment than Amazon? Let’s examine the issue with the help of a chart.
Chart
Please click here for an annotated chart of Alphabet. Please note the following:
• Alphabet fell in the Arora buy zone in December 2018. Arora buy zones are given in advance so that investors can prepare to buy. This gave an opportunity to buy Alphabet around $960. The stock is trading at $1,122 as of this writing.
• The stock has been moving up in a well-defined channel. This is a positive.
• The chart shows that RSI (relative strength index) has diverged. In plain English this means that as the stock price has continued to rise, momentum has waned. This is a negative.
• The chart shows that Alphabet is up against the resistance zone. This is a negative.
Alphabet vs. Amazon
The sum total of the foregoing is that, in the short term from a reward point of view, Alphabet is not a better buy than Amazon. However, from a risk point of view, Alphabet is a better buy than Amazon.
For the long term, it is difficult to tell at this time. The prevailing wisdom is that Amazon will do better than Alphabet in the long term. However, we would not be surprised if the prevailing wisdom turned out to be wrong, as is often the case. Investors need to keep in mind that Amazon poses more risk compared to Alphabet.
Both Amazon and Alphabet have the potential to outperform the Dow Jones Industrial Average DJIA, +0.46% S&P 500 Index SPX, +0.22% and Nasdaq 100 NDX, +0.67%
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What to do now
Those holding Alphabet stock for the long term may consider continuing to hold.
Those holding Alphabet stock who are trading-oriented may consider taking partial profits.
Those who are aggressive and trading-oriented (not holding Alphabet as a long-term investment) may consider taking profits on the entire position and exiting.
Those not in the stock may consider waiting patiently for a dip into the buy zone.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.