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Alphabet shares: a once-in-a-decade opportunity to outdo Warren Buffett

Warren Buffett at a Berkshire Hathaway AGM
Image source: The Motley Fool

Chances to beat Warren Buffett don’t come around very often. The Berkshire Hathaway CEO is one of the most patient, disciplined and careful investors around.

His results speak for themselves, but even the best investors make mistakes sometimes. According to Buffett, one of his regrets is not buying shares of Alphabet (NASDAQ:GOOG).

I think there’s a once-in-a-decade opportunity right now for me to avoid making the same mistake. That’s why I’ve been buying the stock this month.

Missed opportunity

One of the keys to Buffett’s investing success is staying out of trouble. This has worked well, but the downside is that it can result in missing opportunities.

One notable example of this is Google. Over the last 10 years, shares in Google’s parent company Alphabet have increased by an average of 13.7% per year.

In 2019, Buffett and Munger told Berkshire Hathaway shareholders that they should have bought shares in Alphabet. They said that not doing so was a mistake on their part.

They had first-hand experience of Alphabet’s advertising platform, having used it in their own operations. Two things in particular impressed them.

The first was the high margins it commanded. The business was generating revenue on a per-click basis for something that had an incremental cost to them of close to zero.

Second, the service was extremely valuable to its customers. Google advertising allowed businesses to reach a wide audience.

Despite this, Buffett and Munger never bought the stock.

Cheaper price

Alphabet still has high margins and a dominant position in its industry. And I think there’s an opportunity for me right now that only comes around once in a decade.

The stock has fallen by around 37% over the last 12 months. But this isn’t why I believe there’s a historic opportunity here.

At today’s prices, the stock currently trades at a price-to-earnings (P/E) ratio of 17.5. That’s the lowest its been in 10 years.

The average P/E ratio of Alphabet shares since 2012 has been 25. Even during the pandemic, they consistently traded at a P/E ratio of 20 or higher.

So relative to the company’s earnings, Alphabet shares have never been cheaper over the last 10 years than they are now. That’s why I think there’s a rare opportunity here.

A stock to buy

I own Alphabet shares in my Stocks and Shares ISA. And I’ve been adding to my investment this month.

Alphabet’s size means that it’s unlikely to grow as fast as it has done historically. This is the main risk with this type of stock.

But the main features that make it a great business are still there. And its price is clearly attractive.

I’m taking the chance to avoid one of Buffett’s investing mistakes. These don’t come around often, so I’m grabbing the opportunity right now.

The post Alphabet shares: a once-in-a-decade opportunity to outdo Warren Buffett appeared first on The Motley Fool UK.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Stephen Wright has positions in Alphabet and Berkshire Hathaway. The Motley Fool UK has recommended Alphabet. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023