Please ensure Javascript is enabled for purposes of website accessibility

1 Great Tech Stock for Wary Retirees

By Joe Tenebruso - Mar 21, 2017 at 4:48PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This outstanding company allows conservative investors to profit from the rise of emerging technologies -- without the typical level risk associated with the tech sector.

Many retirees shy away from tech companies -- to their own detriment. Maybe it's due to fear of a sector that, as a whole, is often considered to be higher risk than other, less dynamic industries. But there are a select few companies that, thanks to their dominant competitive advantages, offer an excellent low-risk way for investors to profit from emerging technologies. Read on to learn about one of the best.

King chess piece

Image source: Getty Images.

All hail the king

Few businesses are as dominant within their respective industries as Alphabet (GOOG 5.20%)(GOOGL 5.11%). The parent company of Google gives investors an opportunity beyond a core Internet search business that legendary investor Charlie Munger once described as having the largest competitive moat he's ever seen.

With a more than 90% share of the global search engine market, Google is the undisputed king of search. Yet it refuses to grow complacent; it's constantly expanding its reach with an ever-growing array of services. It now possesses an incredible collection of platforms that serve more than 1 billion users each, including YouTube, Android, Chrome, Gmail, Maps, Google Play, and now Google Cloud. Together, they serve to expand and strengthen Google's powerful ecosystem and widen its competitive moat.

Moreover, Google generates enormous amounts of cash, to the tune of nearly $26 billion in 2016, which it has used to build a fortress-like balance sheet with more than $86 billion in cash and less than $4 billion in debt. This financial strength allows it to invest aggressively in research and development, and in the acquisition of companies that are leading the way in important new technologies. All of this, combined with Google's renowned culture of innovation, helps it remain at the forefront of technological change.

Alphabet blocks

Image source: Getty Images.

Other bets

It's this innovation that necessitated its reorganization into its current "Alphabet" structure. The design is brilliant, as it sends a clear message about what the company has become: a collection of businesses with investments in a far-ranging array of exciting technologies that are poised to pay increasing returns to shareholders in the years ahead.

Alphabet's holding company structure allows disparate businesses -- such as self-driving technology leader Waymo, life sciences company Verily, and connected home device maker Nest -- to be run and scaled independently. Management believes this will give these "other bets" their best chance at receiving the resources and attention they need to succeed over the long term. 

Alphabet therefore gives investors many ways to win. The company's core Google business is as dominant as they come, which helps to lower Alphabet's overall risk profile. And the company's other bets have in many ways become analogous to an emerging technology fund overseen by two of the greatest minds on the planet: co-founders Larry Page and Sergey Brin. It's the perfect balance of market dominance and optionality; cash flow and reinvestment opportunity; current success and future growth potential.


At first glance, Alphabet's forward price-to-earnings ratio in the low 20's may seem a bit expensive compared to the S&P 500's forward P/E of about 18. But if you adjust for the more than $82 billion in net cash it has on its balance sheet -- which equates to about $119 per share -- Alphabet's ex-cash P/E drops to less than 19. On that basis, Alphabet's stock is quite a bargain, especially considering its superior growth rates compared to the market as a whole.

Moreover, investors who buy shares today will be buying alongside Alphabet itself. The company has a $7 billion share repurchase program currently under way -- a figure that's likely to continue to grow along with Alphabet's ever rising cash flows. These share buybacks should further help to support Alphabet's stock price, and they signal management's increasing willingness to return capital to shareholders.

All told, Alphabet offers retirees an excellent and relatively low-risk way to profit from emerging technologies -- a high potential field that's often underrepresented in retirement portfolios.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$2,359.50 (5.11%) $114.66
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,370.76 (5.20%) $117.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.