My investments and interest in renewable energy stocks are based on optimism for a greener future. Moreover, 2022 has highlighted the risks in fossil fuel dependency. Due to climate change and energy security concerns, there’s huge investment from public and private sectors into a variety of renewable energy sources.

Thinking ahead 25 years, it’s hard for me to imagine a world that hasn’t significantly shifted towards renewables. However, the returns I might get from an investment in such stocks are less predictable. Let’s asses the cases for and against investing in them today. 

Volatility

The S&P Global Clean Energy Index can be considered a benchmark, aiming to measure the performance of companies in global clean energy-related businesses. This year the index has declined 11%. That’s a dismal return considering fossil fuel giants like BP, Shell and Exxon are up 33%, 40% and 74%, respectively. The index has also been hugely volatile over the last decade.

My main case against buying renewable energy stocks today is this volatility. To clarify, I’m not just talking about the fluctuations in stock prices but the uncertainty that these trends may represent. Will future energy be sourced from batteries, hydrogen, nuclear, solar, wind, a combination of all the above or something else entirely? This is unclear to me. Even if I’m able to accurately predict this, which company or companies will come out on top?

For example, hydrogen looks like a promising alternative to fossil fuels. If it becomes a key piece of a net-zero puzzle, will innovative UK companies such as ITM Power and Ceres Power be the beneficiaries? Or will today’s leading energy companies lead the way?

They certainly have the financial resources to do so. Last quarter, Exxon smashed records when reporting its highest quarterly profits ever. Other fossil fuel energy companies are enjoying similar windfalls. Perhaps the best investment in renewable energy stocks today is actually an investment in the oil and gas juggernauts.

Needle in a haystack

I believe there are comparisons with the dotcom bubble in the 1990s. There were a number of innovative companies within a new and largely misunderstood tech sector. However, many went bust or their share prices never returned to their highs. Despite this, an investment in the tech heavy Nasdaq Composite would have rewarded patient investors over two decades.

Renewable energy stocks aren’t in a bubble. Yet this example suggests I may be wise to invest in a promising sector rather than betting on individual stocks. Why find the needle in the haystack when I can just buy the haystack? It also highlights the importance of taking a long-term approach.

One option is to invest in the iShares Global Clean Energy ETF. It’s one of the most popular renewable energy ETFs and aims to reflect the returns of the S&P Global Clean Energy Index. I’d be happy adding it to my portfolio in the coming months. But if I do, I’ll strap myself in for a long and bumpy ride.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since 1965, Warren Buffett has led Berkshire Hathaway to an average annual return of 20.1%. He’s one of the most successful investors of all time having adapted and thrived over decades of changing market conditions. And despite adapting, his core principles have remained consistent throughout.

Stock markets have been ugly in 2022 and there may be more pain to come. Now, more than ever, could be the time for me to invest like Warren Buffett. That’s easier said than done, of course. After all, Warren Buffett has more funding, better connections and greater influence than I do! Therefore, it’s probably not a great strategy for me to copy his investing moves outright. Even if I wanted to, his trades are only made public at the end of each quarter. 

Instead of copying his every move, I’d be better off adopting elements of his investing style. In particular, the way he identifies “wonderful” businesses and his long-term outlook. By incorporating these into my own budget and risk tolerance, I believe that I can build wealth over many years.

Simplicity and predictability

For decades, Buffett has searched for businesses with competitive and long-lasting advantages. Ideally they have an economic ‘moat’ to protect them from the invasion of new companies looking to tap into their markets.

He identifies businesses in industries that he understands and can predict with relative certainty. These companies usually have produced a similar product or service for many years with consistent growth. For example, insurance, railways and energy are staples of today’s economy. That’s unlikely to change any time soon and that’s partly why these sectors are dominant in his portfolio.

Notably, these are considered to be cyclical sectors. While energy has particularly outperformed the market this year, it tends to underperform during periods of economic contraction. Therefore, diversification is important for me to reduce portfolio risk.

Being patient

Importantly, Buffett buys businesses, not simply stocks. When he invests, he sees himself as a business owner. Whether owning a company outright or a fraction via shares, this mindset is important for all investors. With this mentality, it’s easier to think long term and be patient rather than simply trading stocks and following their prices. It also helps to put periods of volatility and stock market crashes into perspective. 

As an investor in the stock market, I’m optimistic in its potential for long-term returns. There’s good reason to be optimistic too. The US stock market, for instance, has never lost value over a period of 20 years or more. It’s not a get-rich-quick scheme, but instead it has historically rewarded patient investors. Buffett’s career encapsulates this. In fact, over 80% of his $105bn net worth was accumulated after he reached the US full retirement age of 66.

Historic patterns aren’t guaranteed to continue in the future, of course. But they do suggest that the longer my horizon, the less risky my investments should be. I’m hoping 2023 is a better year for global stocks than 2022 has been so far. Whatever happens, I’ll be looking to Warren Buffett’s core principles to guide me through it.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

An investment in Alibaba (NYSE: BABA) stock at any time since its 2014 IPO would probably be in the red today. At the time, it was the largest-ever IPO, priced at $68, raising $21.8bn for the company and its investors. That was around eight years ago and only Saudi Aramco’s IPO has been larger since.

Despite being one of the most prominent Chinese technology names, investor sentiment and risk tolerance for Alibaba has faded dramatically. It’s been a volatile stock with an October 2020 high of $319 but today trades at around $72. So if I’d invested £10,000 in Alibaba stock five years ago, how much would my investment be worth today?

Not pretty

In dollar terms, Alibaba stock declined 59% over the last five years. Ouch! However, the pound has significantly weakened against the dollar in that time to increase the value of my hypothetical investment. Even with currency effects taken into account though, I’d only have £8,358.70 remaining of my £10,000 investment. I’d be down 16.41% after five years, excluding broker fees. Alibaba has never yielded a dividend that could have boosted my investment value. Below is a full breakdown.

The performance has been dismal. For context, an investment in the S&P 500 index would have returned 45% in the same period. That’s without taking into account currency fluctuations and dividend payouts. Despite Alibaba stock’s poor historic performance, should I invest in the Chinese multinational company today?

Do the fundamentals matter?

Alibaba is a company that has delivered revenue growth rates comparable to US tech giants Apple, Alphabet and Meta. Today, it looks cheap with a forward price-to-earnings ratio of just 9.28. It’s also China’s largest provider of public cloud services by revenue with plenty of room to grow. But its long-term performance could have very little to do with fundamentals and more to do with its numerous and complex challenges.

Firstly, Alibaba stock may be delisted from the New York Stock Exchange. Regulators from the US have long demanded complete access to audit working papers of New York-listed Chinese companies, including Alibaba. If this isn’t resolved, a delisting is a possibility. While this wouldn’t directly affect shareholders’ rights or claims on Alibaba, the holdings would be harder to sell and the share price could plummet. 

Secondly, Alibaba’s revenue is being hampered by Beijing’s strict zero-Covid policy. In the second quarter of the year, Alibaba posted its first ever flat year-on-year quarterly revenue growth. There are no signs of this policy easing so future growth is very unpredictable.

Finally, China-US relations continue to worsen. The US government’s crackdown on chip exports to Chinese companies will have put further pressure on Alibaba’s growth. It’s hard to see these relations improving any time soon.

This unpredictability makes it incredibly difficult to value the company. Without these geopolitical and regulatory headwinds, Alibaba stock would look like a bargain. However, I don’t feel comfortable investing in it today. Contrarian investments can deliver great returns for brave investors, but for now, I’m sticking to safer investments elsewhere.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Nathan Marks has positions in Alphabet (A shares). The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m searching for cheap UK shares that can generate a passive income. 2022 has been brutal for many investors, including me. However, this could be a blessing in disguise when it comes to dividend-paying stocks. That’s because as stock prices fall, dividend yields typically rise. Huge declines in some dividend-paying stocks may present an incredible opportunity to supercharge my savings. Here’s how I’d go about it.

Dividend Aristocrats

Importantly, dividend payments are never guaranteed. They can be more or less than the amount distributed in previous years. Therefore, I’m searching for a company with strong business fundamentals that can weather economic storms. Dividend Aristocrats are a good place to start. These are usually companies that boast an economic moat or a comparative advantage. Additionally they typically have low debt and high profitability. Such characteristics allow them to consistently pay and increase dividend payouts to shareholders over many years.

One Dividend Aristocrat I’d buy today is Legal & General (LSE: LGEN). It’s a provider of insurance, savings and investment products. The demand for this tends to be robust in all stages of the economic cycle. Indeed, it has prospered within a competitive industry with a large customer base for decades.

It has been a tumultuous couple of weeks for Legal & General. Amid market volatility, the company felt the need to reassure investors. Specifically, it stated that it had not been a forced seller of bonds or UK government debt, known as gilts. Even so, the share price tumbled and at the time of writing, the stock is down 25% for the year. That’s good news for me though on my search for passive income. It now yields a very attractive and well covered 8.2% dividend.

What’s more, the stock trades at a forward price-to-earnings ratio of 6.3. It’s a quality business and it frankly looks like a good all-round value stock for my portfolio.

Passive income in 2023 and beyond

If I do buy Legal & General shares, let’s take a look at how it can earn me a target of, say, £500 in passive income next year. Each share will currently cost me 226.85p. Therefore, 2,695 shares would set me back just shy of £6,115. Assuming no cuts to its dividend, that lump sum should generate £500 in dividends in 2023. Tasty!

Unfortunately, I don’t currently have enough cash on hand to invest that lump sum today. However, I could still start building towards my savings goals. For example, I could invest £510 a month to save £6,115 in one year. Through regular monthly investments in strong, dividend-paying businesses like Legal & General, I can gradually build a portfolio that generates sustainable passive income. I tend to make investments at the beginning of each month and Legal & General is definitely on my to-buy list for November.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett swears by the inexpensive strategy of investing in low-cost index funds tracking the S&P 500. He encourages this type of investment over active funds in particular. That’s because index funds typically have lower fees and it’s difficult for fund managers to consistently outperform. Moreover, the S&P 500 has returned a historic annualised average return of 11.88% over the last 65 years through bull and bear markets.  

Buffett even put his money where his mouth is. He bet that the S&P 500 would outperform a portfolio of five active funds over a 10-year period from January 2008 to December 2017. Of course the Oracle of Omaha was correct. The five funds averaged a return of only 36.3% net of fees. Comparatively, the S&P 500 returned 125.8%.

The index’s recent performance isn’t so strong. In fact, the returns have been miserable in the last year. It’s down 18% in the last 12 months and 23% year to date. So is the S&P 500 still a safe investment for me?

Empires rise and fall

Today, US stocks make up over 60% of the global stock market. Some 17 of the largest 20 companies by market cap are American. Indeed, it’s difficult to imagine a world in the short-to-medium term where US equities aren’t so dominant. However, in the 1980s, it was Japanese stocks that dominated the investment landscape.

In 1989, Japan accounted for 45% of the global stock market. Then, as the asset bubble burst and monetary policy tightened, Japanese equities plunged over 80%. Over 30 years later, the Nikkei 225 stock index still hasn’t fully recovered. Japan makes up just 6% of the global stock market today. Could the S&P 500 suffer a similar fate to the Nikkei?

I don’t believe so. Yes, the US and Japan face similar challenges such as ageing demographics and increased global competition. However, the US has a more open economic system. This allows for faster population growth and the inflow of the best and brightest from around the world.

Patience is a virtue

Back to my original question of whether investing in the S&P 500 today is a safe strategy. Inflation and interest rates continue to rise. Meanwhile, there’s no end in sight for the war in Ukraine. I fear that we haven’t seen a bottom yet and the bear market could continue for months and even years.

That doesn’t discourage me from investing in the index however. The longer my horizon, the less risky my investment should be. Throughout history, saving regularly through difficult market periods has ultimately rewarded investors. A longer holding period also allows me to benefit from the magic of compounding. Assuming a 10% average annual return — lower than the historical average — I could double my money in around seven years. In 30 years, an investment of £100 a month at this 10% return would leave me with around £210,000. I think my future self would be very thankful for that!

I have to accept that weak returns could continue though and I might even lose money.

And even assuming I make money, the S&P 500 index isn’t an opportunity to ‘get rich quick’. Instead, decades of historical data suggests that regular investments in it and a long-term horizon is likely to reward me as a patient investor.

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With most equity indexes firmly in the red in 2022, there are opportunities galore to snap up cheap shares. There are two businesses in particular that I have my eye on. Indeed, the short-term outlook for global equities remains gloomy. However, with a longer-term outlook of 10 years or more, I’d expect both of these companies to reward me as a patient investor. 

Legal & General

The first share that I’m considering is Legal & General (LSE: LGEN). There is an elephant in the room though. Recently, the pensions market has been in turmoil. Some pension providers have been forced to sell bonds and shares to meet demands for cash. Legal & General has reassured investors that it is not one of these forced sellers. That being said, this turbulent period highlights that there are risks in this business.

The long-term picture for Legal & General gives me more confidence. The demand for insurance and pensions tends to be robust. While the company may not quite have an economic moat, it is a well established brand with a large customer base.

The share price has tumbled 20% in the last 12 months. It now trades at a price-to-earnings (P/E) ratio of just 6.6. That looks cheap to me given that its median P/E in the past decade has been over 10. This is also an attractive investment from an income perspective. It yields over 8% and the company has set out plans to increase dividends annually until 2024. While dividends are never guaranteed, this one is well covered. Even in times of economic turmoil, this healthy dividend could provide a cushion for my portfolio. 

Meta

The second share I like is Meta (NASDAQ: META). I don’t own Meta shares in my portfolio today but I’d be happy buying at today’s prices. Down 60% in the last 12 months, I believe Meta has been oversold. Any investment decision I will make has little to do with its huge investments in the metaverse. Whether these pay off or not is purely speculation at this stage. Digital advertising remains the core business for Meta.

Yes, it has lost market share, and user growth across its products has started to slow. There are also headwinds in the form of iOS privacy changes and a slowing economy. However, it remains attractive to global advertisers. As the macroeconomic picture brightens, I’d expect investor sentiment to improve. Third-quarter results will be released at the end of the month. I’m particular keen to see whether the growth in Reels, its short-form video offering, continues.

With a forward P/E of 10.7, it could be a compelling buy for my portfolio. Its advertising business generated $115bn in revenue with an operating profit margin of 49%. The slowing growth may already be priced into the stock at these levels and I think the stock looks like a bargain today.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I bought Scottish Mortgage Investment Trust (LSE: SMT) shares just over two years ago and it’s been a roller-coaster journey ever since. I watched with glee as the investment trust gained 80% in 14 months.

That glee turned to horror with the share price plunging 51% from its November 2021 high of £15.69. Today, at a price of £7.62, my investment is firmly in the red. After a torrid year, I’m asking myself whether it’s time to bail out of my Scottish Mortgage shares.

Big bets in question

One reason I bought Scottish Mortgage shares was to increase my exposure to growth shares. I could buy one investment trust with a diversified portfolio of public and private businesses around the world. However, even with that diversification, many of its holdings have proven to be susceptible to today’s macroeconomic challenges. Moreover, Scottish Mortgage’s managers have made some big bets that are looking questionable now. 

Firstly, Scottish Mortgage is a large investor and has strong relationships with Chinese businesses. The weighting of Chinese equities has fallen but they still make up 13% of the trust’s holdings. Chinese stocks have particularly suffered in the last year as China’s zero-Covid policy slammed the breaks on growth.

There’s also been an escalation in Sino-American tensions. Consequently, the appetite for Chinese equity investments is low. In fact, Chinese shares listed in Hong Kong have today plunged to their lowest valuation since the global financial crisis.

Secondly, its largest holding, Moderna, has fallen 50% this year. Investors have ditched vaccine stocks with some governments claiming that the pandemic is over. Of course, managers Tom Slater and Lawrence Burns have invested in Moderna with the long-term business case in mind rather than short-term Covid trends. 

Why I remain bullish

Slater and Burns openly admit that volatility is par for the course when trying to achieve long-term gains. They look to add value over five-year time frames and preferably much longer than that. Undoubtedly, they have a proven track record with the share price rising 550% in the past decade even with 2022’s dismal returns. 

The trust’s exposure to private businesses could also unlock future growth that would otherwise be inaccessible to me. Notable examples include spacecraft engineering company SpaceX, Swedish battery developer Northvolt, and TikTok parent company Bytedance. 

I remain bullish on my holding over the coming years and see value in the investment trust today. The shares are trading at a 15.5% discount compared to NAV. At that valuation, I feel more inclined to add to my position rather than sell.

Many of the headwinds contributing to recent poor performance could persist. Nevertheless, I’m planning to ride the Scottish Mortgage roller coaster for years to come.

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Nathan Marks has positions in Scottish Mortgage Inv Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It could be an interesting week for those who own shares in boohoo (LSE:BOO). I must say that I’m relieved I’m not one of them. Its share price has plummeted 85% in the last 12 months and there may be worse to come. In fact it’s the most shorted stock in the UK ahead of the online retailer’s half-year results tomorrow. But despite a gloomy economic outlook, there could still be a bull case. Is it convincing enough for me to add boohoo shares to my portfolio?

A tearful 2022

The company posted a 1% drop in UK revenue while overall sales plunged eight percent in the three months to 31 May. That was the first UK sales drop in boohoo’s history. It pointed to supply chain disruption and increased competition from international players such as Shein as the reason for the issue. 

While boohoo was a beneficiary of the pandemic-induced boom in e-commerce, it has since been hit hard by the cost-of-living crisis. As disposable income falls, new clothes may not be the priority for many of us. Also, online retail is a crowded market and customers expect low prices. Therefore inflation threatens to squeeze profit margins and any price hikes could lead to a fall in boohoo’s market share.

As the group looks to expand and get back to growth, demand is essential. After a poor first quarter, the half-year report will need to show significant improvements. We should have a better idea tomorrow about whether its forecast for single-digit full-year growth is realistic, but even if it is, the macroeconomic headwinds will remain. 

A path to growth

I certainly expect volatility in the short-to-medium term. However, if boohoo rides out this economic turmoil, there’s a path back to growth through its recent investments.

The group is investing heavily in its supply chain in order to crack the US market. Operations should start at a new distribution centre in Elizabethtown, Pennsylvania next year. And it has invested in rolling out automation across distribution centres in its core UK market. These investments are vital to meet consumer expectations of fast fashion. 

As well as market diversification, boohoo has invested to diversify its consumer demographics. It has long appealed to the younger generation who are most likely to be cash-strapped in tough economic periods. After acquiring brands like Debenhams and Dorothy Perkins, it could unlock fresh growth from different demographics to those who shop on NastyGal and PrettyLittleThing.

Am I buying boohoo shares?

Can the group pull off the US expansion and implementation of greater automation? If so, the market may once again value boohoo as a growth stock, making today’s price look like a bargain. I do see value in the stock as it’s trading at less than six times its 2021 earnings. That being said, demand needs to hold up in order to make a success of its ambitious investments. If the half-year results are weak, there could be further significant falls in the share price to the delight of the short sellers. For now, I won’t be investing in boohoo, but I’ll be paying close attention to tomorrow’s results and guidance.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Thursday was a torrid day for investors in Nvidia (NASDAQ:NVDA). The share price fell nearly 8% yesterday, meaning the stock is down almost 55% in 2022. As Nvidia stock hits a 52-week low, does this represent a buying opportunity for me?

Technology crackdown

Nvidia is involved in many of the industries and technological trends that could shape the future. Its work in artificial intelligence (AI) and computer graphics are driving innovation in healthcare, transportation and even the metaverse.

So why is the stock plummeting? The US government’s crackdown on chip exports to China is behind yesterday’s plunge.

In an SEC filing on Wednesday evening, Nvidia said that it had been told to stop exporting two top computing chips used for AI and supercomputing work to China in an SEC filing on Wednesday evening. Tensions are bubbling between China and the US over Taiwan. Technology has become a focus in these escalations and the US has decided to block the sales of some AI chips to China. The US government fears that these chips could be used by the Chinese military to develop new technologies.

These geopolitical trade tensions will impact Nvidia and some of its competitors. While it’s impossible to predict the long-term effect, Nvidia predicts that there will be a $400m impact for this quarter alone.

Nvidia has growth opportunities beyond AI, but there’s no doubt that this is an important part of the business. The technology is still likely in its infancy and any breakthroughs could create lasting competitive advantages. That’s why the US government is treating the exporting of chips as a matter of national security.

Nvidia stock: bull vs bear

Given the $400m impact in this quarter alone, it’s easy to make a bear case so that’s where I’ll start. Not only has this crackdown sparked uncertainty, the macroeconomic conditions could create even more volatility. The company is battling inflation and facing a possible economic slowdown, which could weaken demand for chips.

The current valuation is dependent on future growth and it does not look like a bargain to me. Nvidia stock is valued at a price-to-earnings (P/E) ratio approaching 40 and a forward P/E of nearly 45.

This valuation is expensive yet probably reasonable. It is involved in exciting industries with immense growth opportunities. However, the last 12 months have been incredibly volatile for growth stocks in all sectors and markets. Huge swings in share prices could continue for a while yet.

However, it’s not all doom and gloom. From self-driving cars and supercomputers to transforming work and gaming in the metaverse, the long-term outlook of the semiconductor industry has a lot of promise.

I’m not rushing to buy Nvidia stock today as the news is still to develop and settle in. However, after losing half of its market value in less than a year, I see an opportunity to generate strong returns over the long term.

To reiterate, the next few months and even years could be bumpy, but over a 10-year period, strong businesses like Nvidia should be able to ride out the current economic and geopolitical storms.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here’s a growth stock that I think is a ‘no brainer’ buy for my portfolio. Alphabet (NASDAQ:GOOGL) stock returned 675% in the last decade and is a dominant name across the internet. But 2022 has been — and may continue to be — a rocky year for Google’s parent company and its share price.

However, the global behemoth should be able to easily ride out any economic slowdowns. I see this as a great opportunity for me to buy a quality company at a discount. Here are four reasons why I’ve been buying.

1. Stock split

Alphabet’s 20-1 stock split happens on July 15. While this won’t change its overall market value or capitalisation, it could create value for shareholders indirectly. Firstly, retail investors may find a share price of $110 more attractive/affordable than the current level of around $2,200. This will particularly be the case for those using a broker that doesn’t offer fractional shares. Secondly, the lower share price could lead to Alphabet’s inclusion on the Dow Jones Industrial Average. As this index is widely followed by institutional investors, funds that track it would need to buy Alphabet stock, giving it a short term tailwind. But the long-term growth is coming from elsewhere.

2. Google Cloud Platform

That long-term growth could come from Google Cloud. This business currently accounts for 7% of Alphabet’s total revenue, approaching $20bn. It’s the third-largest cloud infrastructure platform globally, behind Amazon Web Services (AWS) and Microsoft Azure. It’s only a distant third with an 8% market share, while AWS and Azure have a combined 55%. However, Google Cloud grew 53% in 2019, 46% in 2020 and 47% in 2021. If this trajectory continues, Alphabet will be less reliant on its core advertising business.

3. Advertising juggernaut

Not that its ad business is a bad thing. Over the last decade, it has boasted an average annual growth rate of more than 19%. In the first quarter of 2022, it accounted for around 80% of Alphabet’s total revenue. Remarkably, in Q4 2021, Alphabet-owned Youtube’s revenue alone was $900m higher than that of Netflix. Youtube’s monthly active users should be relatively recession-proof too. As inflation bites, many may cancel their paid subscription streaming services, but continue enjoying Youtube’s free ad-based platform.

There are macroeconomic headwinds facing most businesses, of course. And Alphabet won’t be immune to these challenges if advertisers cut spending. Additionally, its near monopoly on search and dominance across the internet makes the business an antitrust target. There’s a possibility that regulators could push to break up Alphabet for suppressing competition. Excluding this, I think its stranglehold on ad revenues should continue.

4. Cash flow machine

The S&P 500 index has entered bear market territory, down 20% for the year. In this environment, I’m trying to invest in ‘quality’ businesses. I believe Alphabet falls under that category despite underperforming the S&P this year. That’s because the business possesses the desirable combination of high returns on capital and high growth. Its strength in advertising helped generate $67bn in free cash flow last year. Revenue is forecast to grow 15% year on year in 2022 and another 15% in 2023. The current price-to-earnings ratio of 20.8 is its lowest valuation in a decade. Consequently, the stock looks great value to me. I’m buying.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Nathan Marks has positions in Alphabet (A shares). The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.