Alphabet Inc (GOOG)

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Are Alphabet and Tesla No-Brainer Stock-Split Stocks to Buy Right Now?
By: Motley Fool | June 18, 2022

• The upcoming stock splits aren't the main reasons to consider these giants.

Among mega-cap stocks with market caps of $200 billion or more, only one has a higher share price than Alphabet (GOOG 1.15%) (GOOGL 1.05%) and Tesla (TSLA 1.72%). And investors have a much less expensive alternative to that stock -- Berkshire Hathaway's Class A shares -- by purchasing the company's class B shares.

But Alphabet and Tesla won't be so highly priced for much longer. Alphabet plans to conduct a 20-for-1 stock split on July 15, 2022. Tesla wants its shareholders to approve a 3-for-1 stock split at its annual meeting in August. Are Alphabet and Tesla no-brainer stock-split stocks to buy right now?

Running with the bulls

To be sure, stock splits don't offer magic formulas for companies to turbocharge their stock performance. As a case in point, Amazon's share price has fallen by a double-digit percentage since its 20-for-1 stock split a few weeks ago.

However, many investors still eagerly await the upcoming stock splits for Alphabet and Tesla. There's a real possibility that these splits could ignite retail investors' interest in the two stocks. More importantly, though, investors have some pretty good reasons to consider Alphabet and Tesla even if they didn't have stock splits on the way.

Alphabet is more attractively valued than it's been in years based on its earnings multiple. The company remains an advertising juggernaut with its Google apps, YouTube, and more. The tremendous growth potential for Google Cloud arguably makes Alphabet even cheaper than it looks at first glance.

Meanwhile, Tesla continues to be the prime disruptor in the auto market. The company's supply chain and vertical integration arguably give it key competitive advantages over rivals. Tesla's revenue soared 87% year over year in the first quarter, with regulatory credits making up only a small percentage of the total.

Playing devil's advocate

If we were to play devil's advocate, though, there are two key reasons why investors might want to avoid Alphabet and Tesla. And they're the same reasons for both stocks.

First, Alphabet and Tesla are susceptible to macroeconomic headwinds. Investors who are afraid that a recession is on the way probably won't be gung-ho to buy these stocks, even when their shares are priced much lower after their stock splits.

Factors such as rising interest rates and high inflation will also hurt both companies' underlying businesses. Advertisers are likely to cut back spending if consumers tighten their purse strings. Potential car buyers could also delay purchasing new cars -- even with the increased appeal of electric vehicles in the midst of sky-high gas prices.

Second, both Alphabet and Tesla face increasing competition. Although the companies stand atop their respective markets now, that won't necessarily be the case in the future.

TikTok has emerged as a major rival for Alphabet's YouTube. Google Cloud has formidable competition from Amazon Web Services and Microsoft's Azure. Tesla's market leadership could also be threatened. Other automakers are elbowing their way into the electric vehicle market.

Brain power required

The mere fact that there are legitimate reasons to stay away from Alphabet and Tesla means that they're not no-brainer stocks to buy right now. Brain power is definitely required to analyze the pros and cons of each stock.

In my opinion, Tesla faces more uncertainties than Alphabet does. I suspect that Tesla could take a harder hit financially from macroeconomic headwinds than Alphabet will. I also think that Alphabet is in a better position to fend off rivals than Tesla is.

Alphabet is taking the threat presented by TikTok seriously. Its YouTube Shorts is already averaging more than 30 billion daily views, more than four times greater than a year ago. Tesla faces multiple rivals that could compete effectively on both cost and quality.

The valuations of the two stocks are also different. As mentioned earlier, Alphabet's shares trade at a historically low earnings multiple. Meanwhile, Tesla stock trades at nearly 59 times expected earnings. Yes, Tesla should have a much higher growth potential. But even factoring in growth prospects, Alphabet looks a lot cheaper.

I think that Tesla could continue to be a big winner over the next decade. However, I believe that Alphabet almost certainly will be a big winner.

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