Take Advantage of GOOG Stock When Fair-Weather Fans Flee

Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) stock has tumbled sharply, due to the market overreacting to negative news. The latest occurrence of the phenomenon, which I’ll refer to as GOOG’s “fair-weather pattern,” occurred following the company’s latest earnings release.

So, what is the relevance of this “pattern” to existing and/or news investors in GOOG stock? While it may be too late to capitalize on the latest instance of this pattern, there’s a strong chance we will see this phenomenon play out again, as the many in the market remain convinced that this tech blue-chip’s dominance is on thin ice.

GOOG Stock and the ‘Fair-Weather Pattern’

As you may recall, Alphabet shares took a beating in early February of this year, following the poorly-received unveiling of the company’s generative artificial intelligence platform, Bard.

The “Bard blunder” left many investors convinced that the company was going to lose a significant share of the search advertising market, as Microsoft (NASDAQ:MSFT), thanks to integrating Open AI’s ChatGPT technology into its Bing search engine, would give it an edge over the market leader.

However, after dropping to sub-$100 per share prices, in a little over a month, GOOG stock was back to prior price levels. In the ensuing months, further progress with the company’s generative AI efforts helped to convince investors that the initial fears of Microsoft’s eating Alphabet’s lunch were overblown. In my view, this was the first instance of the “fair-weather pattern”

Fair-weather investors unceremoniously dumped GOOG, only to return when the situation improved. Investors who went contrary to the fair-weather pattern profited, buying on heavy weakness, with the opportunity to sell at a gain when sentiment shifted back to bullish. Those who picked up on the pattern on the onset of its latest occurrence have had yet another bite at the apple.

The Latest Instance, and Why it May Happen Once Again

Another “fair weather pattern” for GOOG stock emerged in late October. Following the tech giant’s quarterly earnings release on Oct. 25, shares tanked by nearly 10%. As Louis Navellier and the InvestorPlace Research Staff pointed out, this post-earnings sell-off didn’t happen because of an earnings or revenue miss.

Rather, it was because of news of Alphabet’s Google Cloud segment reporting revenue growth that fell short of sell-side forecasts. Similar to the first “pattern,” fair-weather fans perceived this news as a sign that Alphabet is “falling behind,” and that Microsoft is winning at its expense.

This go-round, though, these flaky fans are more quickly realizing their mistake. GOOG (trading for $140 per share ahead of earnings) is already back to the low-$130s per share, suggesting a quick re-cycling back into shares. Still, while this latest instance is wrapping up, keep an eye out for the next instance.

Although GOOG has gained by nearly 50% year-to-date, this stock remains a “show me” type of situation. The market is not entirely confident Alphabet will keep competition at bay. It will probably view any negative development, even small potatoes ones, as a warning sign to jump ship.

An Interesting Angle for Alphabet Investors to Consider

It’s perhaps possible to scalp fast profits buying in the next time threatening news surfaces, but there may be an even better way to put this angle to good use.

If you instead build up a long-term position. By buying only when the “fair weather” trend is in season, you could generate even larger gains.

Digital advertising demand keeps bouncing back. Despite the overreaction, Google Cloud keeps growing, and could continue to become a greater contributor to the company’s bottom line.

The top end of sell-side forecasts call for earnings to hit $9.50 per share by 2026. That’s over 65% above estimated earnings for this year.

With such strong growth, GOOG stock is poised to re-hit its high-water mark, and to hit new highs over the next three years. Hence, making contrarian purchases on heavy weakness stands to be a very profitable move in hindsight.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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