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1 US growth stock I’d buy over Tesla

Image source: Tesla

Tesla (NASDAQ: TSLA) is one of the most popular stocks in the world right now. Here in the UK, Tesla is currently the most owned stock on the Trading 212 platform. Meanwhile, on Hargreaves Lansdown, it’s consistently been one of the most bought stocks in recent months.

Tesla stock: investors love it

I can see why the Tesla stock is popular. For starters, the brand is the undisputed leader in the electric vehicle (EV) industry at present. This industry is set for massive growth in the years ahead as it’s still in its infancy. This growth should provide tailwinds for Tesla.

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Secondly, its car sales are expanding rapidly. Last year, the group delivered 499,950 vehicles. That represents a 36% increase on the number of cars delivered in 2019. The company is currently building new factories in Austin, Texas, and Brandenburg, Germany, in an effort to boost production and sales volume.

Third, the company has an influential leader in Elon Musk. He has an incredible track record when it comes to growth ventures.

Having said all that, I just can’t bring myself to buy Tesla stock at the current valuation. With a market capitalisation of $766bn, the company is valued at around $1.5m per car sold. Meanwhile, the stock sports a forward-looking price-to-sales (P/S) ratio of 16 and a forward-looking price-to-earnings (P/E ratio) of around 190. These valuations are just too high for me.

Given that competition in the EV space is heating up, I see Tesla stock as too risky for my portfolio right now.

I’d buy this US growth stock

So I’m looking elsewhere and one US growth stock I’d be happy to buy for my portfolio today is Alphabet (NASDAQ: GOOG). It’s the parent company of Google and YouTube.

I’m bullish on Alphabet for a number of reasons. Firstly, it’s one of the most dominant players in the digital advertising space. The online advertising market is expected to be worth $980bn by 2025, up from $304bn in 2019. This long-term growth should benefit the company.

Secondly, I’m excited about the long-term growth prospects for YouTube. In recent years, this platform has evolved into an entertainment powerhouse. In Q4 2020, YouTube ad revenue rocketed 46% to $6.9bn.

Third, Alphabet is a major player in the cloud computing industry. Last year, cloud revenues rose 46% to $13bn.

Finally, Alphabet is a big player in the autonomous vehicle space through its Waymo subsidiary. It’s early days here, but the prospects look very exciting.

Now, Alphabet sports a huge market-cap itself. Currently, the company is worth around $1.4trn. Yet here’s the thing. Sales and earnings per share are expected to come in at $225bn and $69 respectively this year.

This means the stock’s forward-looking P/S ratio is about 6.5 while the forward-looking P/E ratio is about 31. These ratios are still high – meaning there’s valuation risk. But, in my view, they’re much more reasonable than those of Tesla stock.

Aside from the valuation risk, there’s also risk associated with regulation. Major regulators are targeting big tech at present and this adds uncertainty to the investment case. It’s also worth noting the cloud industry is highly competitive. Alphabet faces competition from the likes of Amazon and Microsoft.

Overall, however, I think the long-term risk/reward proposition is attractive. I see this growth stock as a safer bet for my portfolio than Tesla stock.

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Edward Sheldon owns shares in Alphabet, Microsoft, Amazon, and Hargreaves Lansdown. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Amazon, Microsoft, and Tesla. The Motley Fool UK has recommended Hargreaves Lansdown and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.

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