[NASDAQ: GOOG]: There is the consensus in the market that the FED will hike rates next week. In a Bloomberg survey of 60 economists, 95% of them believe that the FED will hike rates next week. This explains the sell-off that hit the market last week. The overall market weakness also comes from the fact that, there are other factors putting a strain on the global economy. These include The U.S-China trade war, Brexit, and crisis in countries like Italy in the EU. As such, a rates hike could have a negative effect on company earnings in coming quarters. From an investor viewpoint, the companies to watch in this environment are those with low debt levels, have high-profit margins, and have fundamentals to give them exponential growth in 2019. One such company is Alphabet Inc (NASDAQ: GOOG).
One thing that makes Google Inc a safe bet in case of an interest rate hike is its low debt levels. The company has a debt level of $3.99 billion. This is a relatively low debt level for a company that has a levered free cash flow of $20.83 billion. On top of that, from a look at its current ratio of 4.14, Alphabet Inc. is very capable of handling its debt obligations with ease. This makes it a safe bet, even if the FED were to hike rates next week, or at any point in 2019.
Then there is the aspect of profit margins. In case the Fed hikes rates and the economy slows down, many companies could be hit by declining sales. That’s because if consumers borrow less, it also means that there spending will reduce. In such an environment, companies that have a high profit margin on sales are cushioned from a decline in spending. Google is one of the companies that is insulated from a decline in sales due to reduced spending in the economy. That’s because the company has an above average profit margin of 14.45%. The company also has a high operating margin of 23.76%. This gives it a significant level of insulation even in an environment of low spending due to higher interest rates and a general slowdown in growth in the global economy.
On top of that, Alphabet Inc (NASDAQ: GOOG) operates in high growth markets and is making breakthroughs into new markets through innovation. For instance, Google is investing heavily in artificial intelligence, and it’s opening new avenues for future growth. Google’s forays into AI, a market that is projected to hit $15.7 trillion by the year 2030 are paying off. The company’s AI based speakers are growing in demand, and Google has pushed from a market share of 8.7% to over 22%. This growth will act as an insulating factor for Google’s share price, even in a slow economy. Google is also looking to integrate AI into its search business, and this will play a crucial role in the company’s revenue growth in the coming quarters. With a combination of these factors, Google growth prospects in 2019 look good, no matter where the Fed takes the market.