We recently published a list of 11 Best Innovative Stocks to Buy According to Analysts. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against other best innovative stocks to buy according to analysts.
Innovative stocks are the companies that continuously invest in developing new products, services or even entire business models, enabling them to stay ahead of competition and thrive in any stage of the market cycle. The ability to innovate can be considered a form of adaptability, which is required to survive in a tough and hyper-competitive business environment. It also helps businesses build a robust competitive advantage, often called “business moat”, which is a determinant of profitability and ability to gain market share and thus grow above the industry growth pace.
Empirical research links superior profitability (as measured by Return on Equity or Return on Invested Capital) and the ability to gain market share with superior stock price returns. Analysts and researchers find that such companies are often the ones that focus on innovation and constantly reinvent themselves to prevent the competition from catching up. Notable examples of successful innovation in the past are the creation of user-friendly computers, which cemented some of the widest moats that thrive until this day, or completely new production and fulfillment models such as the “just-in-time”. The importance of investing in innovative stocks has been recognized by many legendary investors, such as Peter Lynch. Here’s what he said on this topic:
“The best companies to invest in are those that innovate and are growing within industries you understand.”
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The best innovative stocks are even more favored now than in the past, as technological advancements are disrupting industries faster than ever. For instance, the proliferation of the AI trend is a game changer in many industries, as this new technology not only allows businesses to slash operating costs and optimize processes but can also create complementary products, services, and even entirely new market opportunities. The companies that are the first to capitalize on AI capabilities will be the ones to gain market share, become more profitable than ever, and thrive for years to come. Likewise, the pandemic, high inflation, high interest rates, and geopolitical tensions have uncovered other areas that require innovation – sustainable supply chains are now more important than ever, while automation, AI, or robotics initiatives are required to preserve profitability amid inflationary pressures.
