The FAAMG stocks as a group had a roaring 2020, but one of those Big Tech names might just rise above the pack this year.
At least, that’s what one Goldman Sachs portfolio manager is betting.
“Google I think is poised to be the best performing of those very mega cap large names,” Brook Dane, a managing director and portfolio manager of the Technology Opportunities Fund at Goldman Sachs Asset Management, tells Fortune.
Despite Google’s venerable status among the FAAMGs—now categorized as Facebook, Apple, Amazon, Microsoft, and Alphabet (Google’s parent company)—as a winner of the pandemic (not to mention its over 30% return last year), Goldman’s Dane thinks the stock still looks attractive as, surprisingly, a post-pandemic play.
In particular he argues Google is poised to benefit as internet advertising picks up again in 2021. “In our minds, you’re going to see some of the big sectors that had been absent the market because of the pandemic—so think travel, hospitality, live events—those businesses will return to the marketplace and return to spending,” says Dane. “When you also think about how companies approach their spending patterns and how they use internet advertising to drive demand, one of the first things people return to is search, and you would expect search businesses to accelerate as we move through 2021.”
Indeed, he sees a scenario where search improves as hospitality, live events, and travel return as “everyone starts to get vaccinated and the economy reopens,” which should give Google a “double-kicker in their core search market that should start to drive business.”
That all fits into Dane’s strategy for 2021 of “looking for names where we think as we get to more of a cyclical recovery, post-vaccine, you could see real acceleration in the fundamentals and we’re not being asked to pay too much for those fundamentals,” Dane says. Currently Alphabet is trading at around 31 times forward earnings, a heady price tag yet much less expensive than some of its tech peers.
Indeed, Dane notes “notwithstanding my love for Google, we’ve moved to an increasingly underweight position in those [mega cap] names” coming off such a big year for the class.
But apart from beleaguered businesses boosting their ad spend once more, Dane thinks Google’s recent announcement they will be more transparent around their cloud business (GCP) is a positive sign (“Companies don’t give more transparency unless they’re very confident the story they’re about to tell is a good story,” he says).
To be sure, Google is facing plenty of headwinds this year as regulatory issues heat up (the company was recently slapped with its third antitrust lawsuit since last fall). And some on the Street expect the new narrowly Democrat-controlled Congress to up the scrutiny on the FAAMG names moving forward.
But Dane for one largely brushes those threats off: “When you look at … where the first path of the [law]suits have been, it’s nothing that’s structural and would impair the economics from how Google drives revenues, profit, and free cash flows,” Dane suggests. “I just think Google is less at risk than the other players out there.”
Explore Fortune’s Q1 investment guide:
- 8 tech stocks to buy for 2021
- Tesla is the proxy for a stock market gone mad
- Are SPACs a good investment?
- Should you add Bitcoin to your portfolio in 2021?
- Where to invest in real estate: The 10 hottest tech meccas beyond Silicon Valley
- The overlooked tech portfolio: Great stocks that aren’t big names
- Why savvy investors aren’t abandoning the tech trade—yet
- How tech stocks ‘ate’ the stock market
