GoodHaven Capital: “Overall Growth at Alphabet (GOOG) Could Accelerate in 2021”

GoodHaven Capital Management, a concentrated portfolio investment management firm, published its fourth quarter 2020 investor letter – a copy of which can be downloaded here. A return of 7.93% was recorded by the fund at year end of 2020, below its S&P 500 benchmark that delivered a 17.46% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

GoodHaven Capital Management, in their Q4 2020 investor letter, mentioned Alphabet Inc. (NASDAQ: GOOG) and emphasized their views on the company. Alphabet Inc. is a Mountain View, California-based holding company, and the mother company of Google. It currently has a $1.37 trillion market capitalization. Since the beginning of the year, GOOG delivered a 16.28% return, extending its 12-month gains to 83.41%. As of March 25, 2021, the stock closed at $2,044.36 per share.

Here is what GoodHaven Capital Management has to say about Alphabet Inc. in their Q4 2020 investor letter:

“Alphabet’s family of digital advertising platforms continues to quickly recover from the global economic downturn in the spring and as we expected earnings growth has resumed. In a surprise to nobody, the U.S. Department of Justice, FTC, and many state enforcement agencies are marching forward on their myriad of anti-competitive legal actions against Alphabet. We think these issues are manageable though hardly trivial. By the way, we own parts of businesses, and there are always things to worry and think about that might impact those businesses. Often, the more important things to focus on get less attention from prognosticators. At Alphabet, for instance, we have long focused on the inter-play of their historic relationship with Apple – where Alphabet appears to pay Apple at least $7 billion/year to be the default search engine on all iOS devices. This relationship figures prominently in some of the enforcement action(s) but until recently was less frequently discussed. It was, however, something we had long spent time considering and the type of deeper analysis we focus on for all our companies. Alphabet’s top line grew a very impressive 15% in Q3 2020 with many aspects of digital advertising still depressed from COVID-19. That implies that other parts of the Alphabet ecosystem – such as Cloud, Google Play and YouTube grew faster. Google shopping’s decision earlier this year to reduce listing barriers appears thoughtful. We’d think that growth overall at Alphabet could accelerate in 2021. At a below market adjusted P/E multiple we see plenty of upside over time.”

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Our calculations show that Alphabet Inc. (NASDAQ: GOOG) ranks 6th in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Alphabet Inc. was in 157 hedge fund portfolios, compared to 150 funds in the third quarter. GOOG delivered a 17.16% return in the past 3 months.