I bought Alphabet (GOOG) on 15 May at $1,116.78 because:

Google’s parent company Alphabet just reported their Q1 2019 earnings and Wall Street didn’t like what they saw. The Q1 revenue and earnings came out lower than expected and the stock tanked about 10% after the earnings call, which provided me a long-awaited chance to pick up one of my favorite value stocks at a discount. Here’s why I consider Alphabet to be not just a great business but a great stock as well.

I’ve blamed myself for years for not owning Google even if I’ve been fully aware of the value their ad network – especially paid search – has brought to advertisers since the invention of search advertising and the Google AdRank system. For over ten years, I’ve seen the phenomenal ROI of search advertising in practice, and it’s been clear all the way that the ad engine behind the majority of Google’s profits is built to last. With the global digital marketing spend predicted to grow from the current $230 billion to $300 billion in the upcoming year(s), and Google owning nearly 40% of the digital advertising market, it seems clear that the core business is set for growth despite regulatory risks and the quickly arising competition from Facebook and Amazon.

Even if the Q1 revenue growth was a disappointment for analysts, I considered the dip an awesome buying opportunity as for a company this big, Google has had an amazing capability to constantly grow the top line while retaining extraordinary operating margins. What struck me most in the Q1 earnings was the extremely impressive free cash flow, coming in at over $7.36 billion, which is an increase of over 70% year-over-year. Alphabet is a cash generating machine and I remain optimistic that their top leadership and intelligent workforce will keep finding good use for the money.

Alphabet has a monster balance sheet with over $138,207 billion in current assets, $245,349 billion in total assets, and just $61,877 billion in total liabilities, making it one of the best balance sheets out there.

I still consider the YouTube, Waymo, and Google Cloud parts of Alphabet’s business to be undervalued, setting the company up for growth in the not-so-distant future. Without even mentioning the company’s potential to capitalize on their lead in AI/machine learning technologies. Google has only a little exposure to China so the escalating trade war is not a big concern to me.

At $1116, the stock was trading at the same levels than almost exactly a year ago, and the business has gone forward a lot since that. With a healthy and growing core business and promising “other bets” I see Alphabet in the $1100 - $1120 range as a good value play with a potential 20% upside still this year.