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If I Had to Buy and Hold 1 Stock for the Next Decade, It Would Be This

By Parkev Tatevosian, CFA – Dec 17, 2021 at 5:11AM

Key Points

  • Global ad spending is estimated to rise over 20% this year.
  • Digital ad spending is expected to take a larger share of overall spending.
  • Alphabet more than doubled its net income from 2016 to 2020.

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This growth stock has a dominant share of an expanding market and is selling at a reasonable price.

It isn't easy to choose only one out of the thousands of stocks in the market. It's usually prudent to have a portfolio of several stocks in your portfolio. That way, your investment returns are not dependent on one single company. However, if I had to pick one stock to buy and hold for the next decade, it would be Alphabet (GOOGL -0.15%) (GOOG -0.19%)

Google's parent company is a leading player in a growing industry with a profitable business model that could drive healthy investment returns for the long term. Here's a look at why Alphabet would be my pick.

A person using a laptop computer.

Image source: Getty Images.

Alphabet is a dominant force in a thriving industry

At the core of Alphabet's business is its dominant search engine. According to Statista, as of September, Google boasts an 86.6% share of the global search engine market. That share has remained relatively stable over the last decade, evidence that the competition is making little headway. With such a large share of users starting a search with Google's engine, marketers are interested in getting links from the businesses they represent to show up in Google search results.

Alphabet makes nearly all its revenue from advertising. In the last three years, Alphabet's revenue increased from $137 billion in 2018 to $183 billion in 2020. Interestingly, global advertising spending is estimated to grow 22.5% and reach $763 billion in 2021, according to GroupM. Alphabet's massive annual revenue in comparison to the total market's overall ad spending highlights the sway this company holds. 

Another trend Alphabet benefits from is an increasing share of advertising spend moving online. Indeed, according to GroupM, digital's share of overall ad spending is estimated to reach 64.4% in 2021, up from 52.1% in 2019. Alphabet is in an excellent position to thrive as a larger share of advertising moves to the digital world -- where the company dominates.

The underlying reason marketers are spending more online is unlikely to change. Consumers are spending more time on mobile devices connected to the internet. Marketers will always follow consumers, and it doesn't appear that consumers will shun the internet anytime soon. 

Moreover, digital advertising is more efficient. Marketers can better target the audience they wish to reach. The older advertising methods on radio, newspapers, and cable TV are almost impossible to measure with any precision. How many people saw your TV ad? How many heard your radio spot? You can estimate these figures but not achieve any accuracy. In contrast, a digital ad can give you precise data on how many people saw, clicked, and ultimately purchased a product or service. 

Alphabet is fairly priced 

In addition to a dominant share in a growing industry, I like Alphabet because the stock is fairly priced. As of this writing, Alphabet was selling for a price-to-earnings ratio of 28 and a price-to-free-cash-flow ratio of 30. Those are roughly the average ratios it has sold for during the last decade. That is a reasonable price for a business that's more than doubled net income from $19.5 billion in 2016 to $40.3 billion in 2020.

Alphabet has a dominant position in an expanding industry, generating revenue and profit growth while the stock is selling at a reasonable price. That's why I would pick Alphabet if I had to pick only one stock for the next decade. 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns Alphabet (C shares). The Motley Fool owns and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

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