Alphabet Inc. (GOOGL), parent company of search engine giant Google, saw its share price surge 9.62% on Friday, July 26, after topping analysts' second quarter (Q2) top- and bottom-line expectations. The results helped alleviate growth concerns after a revenue miss in the first quarter.
Revenue for the period came in at $38.9 billion, surpassing projections of $38.2 billion and increasing 19% from the year-ago quarter. The internet services titan attributed sales of mobile ads, YouTube ads, and cloud computing services for strong top-line growth. The tech behemoth reported adjusted earnings of $14.21 per share, smashing estimates of $11.32 per share. Investors also cheered the announcement of a $25 billion buyback of its Class C capital stock, aimed to make use of its $121 billion cash hoard.
"Investors were anticipating revenue deceleration, but Alphabet delivered a reacceleration," Atlantic Equities analyst James Cordwell told Reuters. "An increased buyback and greater disclosure around cloud revenue also suggest that management cares about stock performance, which will be a relief to shareholders," Cordwell added.
Traders can gain exposure to Alphabet stock using these three exchange-traded funds (ETFs) that allocate a large portion of their portfolio to the Silicon Valley-based company. Let's take a closer look at the specifics of each fund and work through several bullish trading ideas.
Communication Services Select Sector SPDR Fund (XLC)
Launched in June 2018, the Communication Services Select Sector SPDR Fund (XLC) aims to provide similar investment returns to the Communication Services Select Sector Index – a market-cap weighted benchmark comprising U.S. telecommunication and media and components on the S&P 500 index. The fund allocates 11.48% of its portfolio to Alphabet Inc. Class C (GOOG) and 11.25% to Alphabet Inc. Class A (GOOGL). Trading volume of over 3 million shares along with a narrow 0.02% average spread keep trading costs down. The ETF's low 0.13% expense ratio also keep management fees in check. XLC has $5.63 billion in net assets, offers a 0.79% dividend yield, and sports an impressive year-to-date (YTD) gain of 22.33% as of July 29, 2019.
Alphabet's upbeat Q2 earnings propelled the fund's share price to a fresh 52-week high/all-time high on Friday, July 26, 2019. The breakout above crucial overhead resistance at $51 may act as a catalyst for further momentum-based buying in the days and weeks ahead. Traders who take a long position here should consider using a fast period moving average, such as the 10-day simple moving average (SMA), as a trailing stop to let profits run. Think about placing an initial stop-loss order below Friday's low at $51.14 or below this month's low, depending on risk tolerance.
Fidelity MSCI Communication Services Index ETF (FCOM)
With assets under management (AUM) of $339.77 million, the Fidelity MSCI Communication Services Index ETF (FCOM) seeks to track the performance of the MSCI USA IMI Communication Services 25/50 Index. The ETF tilts heavily toward internet services companies, allocating almost half of its portfolio to the sector. Therefore, it's not surprising that Alphabet Inc. Class C and Alphabet Inc. Class A command a cumulative 21.22% weighting in the fund's basket. The ETF, which was created six years ago, has one of the lowest management fees in the segment at just 0.08%, while daily dollar volume liquidity of roughly $3 million allow traders to enter and exit positions with ease. As of July 29, 2019, FCOM issues a 1.47% dividend yield and has returned 20.60% YTD.
The fund's price staged a spectacular 30% recovery between late December and April. A steep sell-off in May saw the price retrace to the 200-day SMA before recovering to retest the April 29 high in mid-July. The ETF's significant exposure to Alphabet helped the price finally smash through overhead resistance at $34.50 in Friday's trading session. Breakout traders who take an entry may decide to trail a stop below the previous day's low. Manage risk by cutting losses if momentum suddenly stalls and the fund's price closes beneath the July 25 low at $34.01.
Vanguard Communication Services Index Fund ETF Shares (VOX)
Formed in 2004 and charging a 0.10% management fee, the Vanguard Communication Services Index Fund ETF Shares (VOX) has an investment objective to provide returns that correspond to the MSCI US Investable Market Telecommunication Services 25/50 Index. The tracked benchmark consists of large-, mid-, and small-cap U.S. companies within the communication services sector, as classified under the Global Industry Classification Standard (GICS). Like the ETFs discussed above, Alphabet Inc. Class C and Alphabet Inc. Class A take a prominent position in the fund's portfolio of 115 holdings, carrying weightings of 10.58% and 10.01%, respectively. Fellow FAANG member Facebook, Inc. (FB) takes the top allocation at 15.50%. As of July 29, 2019, VOX controls an enormous $2.1 billion asset base and has returned 21.02% so far this year. Investors receive a 0.95% dividend yield.
Since generating a "golden cross" buy signal in early April, the ETF's share price has traded roughly in an eight-point range. Friday's breakout above key resistance at the $90 level may cause a short squeeze in subsequent trading sessions as those who thought a double top pattern was forming rush to cover. Traders could set a take-profit order by measuring the distance from the December low to the April high and adding it to the breakout point — for example, adding $21.28 to $90, setting an exit target at $111.28. Protect trading capital by placing a stop somewhere between $90 and $88.