I am just going to come right out and say it. I am bullish on Google (GOOG) and I think the company is deeply undervalued. The fact that the company is in so many different markets and is still relevant is amazing. Google has its own line of smart phones and tablets to compete with Apple (AAPL) and the iPhone and iPads. The company has Google Chrome and Google.com to compete against Microsoft's (MSFT) Internet Explorer and Bing. Even recently, the company released Google+ to combat against Facebook. I am not really sure what in the tech industry Google can't do, but I do know whatever it does attempt, the company does it well.
Although the stock has been up and down this year, it is currently about 20% higher than it was year to date. The beta on Google is 1.19, so the stock should be no stranger to volatility. The stock is currently trading just around the $610 per share range. While some may look at this price and automatically think that Google is overpriced, the company boasts earnings per share of $32.99, giving the stock a price to earnings ratio of 18.40. The current industry ratio is around 24; based on this metric alone, Google could actually have even more room to grow based on current earnings. Google has recently announced that it will do a 2 for 1 stock split. Other than bring down the share price and dilute earnings, the split is also going to solidify control to Google's current management as the new shares will have no voting rights. Ultimately, it appears most investors are not concerned by this as they are mainly focusing on the company's earnings, which is doing quite well.
As I have stated in previous articles, Apple is flying high as well. Over the course of the last 12 months, the stock has gone up by about 80%. This is an outstanding amount for a company as big as Apple, who passed Microsoft in market cap in 2010. Apple's rise to power is no doubt due to the company's outstanding products. From iPads, iPods, and the iPhone, Apple is a strong competitor in electronics. In the tablet market, Apple has about two thirds of the market. With 60 million tablets sold, about 40 million of those were iPads. The interesting thing about Apple is the company always has room to grow. If any of Apple's products start to lag in sales, the company can phase them out and release a newer version, sparking additional interest.
Microsoft is another company that I like, although some of its products have been suspect in the past. Microsoft has seen a rise in price over the last year, realizing an increase of about 20%. When investors think of Microsoft, they do not necessarily think growth, at least not anymore. In actuality, there are some points of entry for Microsoft that will help the company grow its numbers. Because Microsoft offers a cheaper package than Apple, the company has a better chance at competing against Apple in emerging markets. As Google expands into other continents like Asia, Microsoft will have the advantage to gain a foothold as most application software used by internet providers is made by Microsoft. Also in Microsoft's corner is the fact the company just secured its largest cloud computing customer. The All India Council for Technical Education will use Microsoft, giving the company access to about 7.5 million users.
Although Facebook (FB) has not yet had its IPO, it should take place sometime in May of this year, I think the company will affect the stock and the social site Google+. Google is just in the beginning of its social media, but if the company continues focus, it could very well steal some of Facebook's business helping the stock in the long run. As much as I do like Google, it has slid in perception in eyes of the public.
The company was fined $25,000 by the Federal Communications Commission due to how Google obtained personal information to develop Street View. In addition, the company is facing a lawsuit with Oracle (ORCL) over the use of Oracle's Java technology. Obviously, depending on the outcome of this lawsuit, Google's profits and stock price could suffer. However, it could cause a good point of entry for some investors who feel that the stock price, even split, is too expensive for them. In the short term, I do see some more volatility for the company, possibly bringing the price down a little. However, in the long run, I do see Google weathering the storm and bouncing back strong. Analysts have a mean target price of $747.17 for Google. I believe the stock can reach its mean target this year. That would be an additional 20% increase from last year as mentioned earlier, or about $140 per share.
There is no question of Google's dominance in some markets. The company's Android powered phones are a huge rival to Apple's iPhone. Even if the company does not increase its market share in the states, there is still growth to be had internationally. In China for 2011, Google's OS doubled, going from 33.6% market share to a dominant 68.4%. In the same market Apple only had 5.7% market share. I think that even though there may be some bumps in the road ahead for Google, this would be a good stock to go long on.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.