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It has a $246 billion dollar valuation - for a company that nobody knew about 15 years ago. Obviously I'm referring to Google (NASDAQ:GOOG). It might sound weird, but at least for the last year this tech behemoth hasn't been the poster child for 21st century technology's arrival on the scene. That title belongs to Apple (NASDAQ:AAPL). So where is Google headed? Up.

(click to enlarge)YTD Comparison of Google and the S&P 500 up till the end of last week. Google is ahead as of September 26th.

Why?

Google is a proven winner. Facebook is not the new Google. Facebook is the new AOL. Maybe the new MySpace (we'll get back to AOL later). Google does an amazing job of having brilliant ideas and then moving forward with them at a pace seldom seen by a company with a 12-figure market cap. It's hard to think of any flops besides G+, which I'm not sure we've seen the end of. On the successful side, we have Google maps, Google's new internet service, Google's browser (Chrome), Gmail, and Google Play, just to name the first six I could think of. And they own YouTube.

They have big ideas and they know that enough of them will be successful enough that they can keep innovating. When a $2 billion write-off is less than one percent of Google's market cap, it is easy to see how they can be so intrepid. All of these side projects that are so ubiquitous? They don't begin to approach the size of Google's main areas of dominance: Search and Advertising.

Google will generate $12 billion in free cash flow this year. If Google continues to expand in all of these areas, it is not only conceivable that they will dominate one or more, it is inconceivable that they won't. It is hard to say which one (will iPhones be on Android in ten years?), but that's the beauty. We don't have to know which area google will be fighting off monopoly lawsuits in because they are in so many spaces that it seems certain they will take over at least a few.

What could go wrong?

The foremost argument for being bearish Google is that technology companies have as of late been the most susceptible to multiple contraction. With its beta of not-quite 1.10 it seems very unlikely that Google would considerably miss expectations without major influence from an economic downturn. In the case of such a downturn Google has many advantages, especially the aforementioned cash, that make it a better place than most to have equity during hard economic times. Within the technology sector it is hard to be more diversified than Google, and if we can glean any information from the recent run of AAPL, a broad contraction in people's demand for technology does not seem likely.

People in line for the iPhone 5.

What else is different from the last time Google was at $700? Although we didn't know it, we were one year out from the worst recession in memory. Google had $3 billion in free cash flow. With free cash flow four times higher and an economy that could hardly be on a similar precipice it seems unlikely that shareholders are staring a 5 year break-even period in the face.

Is Google Too Expensive?

With a price/earnings ratio of 22, it does seem expensive. The most commonly compared stock? Baidu (NASDAQ:BIDU). The Chinese search behemoth has an equally behemoth P/E of over 28. Though the case for more explosive growth in China than elsewhere is persuasive, I find it unlikely that Baidu will be able to expand much after that. I would not bet on Danes or Spaniards searching from baidu.com in fifteen years, but I can see a scenario where many Chinese use Google. Maybe that is just a Western bias, though.

How about the other search giant turned jack-of-some-trades, Yahoo (NASDAQ:YHOO)? This mostly stagnant king of the dot-com era has a P/E approaching 18. This makes Google look like a steal at current valuations.

Just for fun, and because I said I would, what is AOL (NYSE:AOL) up to these days? Probably a bad comparison. Their P/E is 3. I decided to check out their latest 10-K because I couldn't help myself. Revenues at AOL are down over 1/3 over the past two years, and 37.7% of their assets on the books is made up of "goodwill". Smells like a short to me, but I digress.

(click to enlarge)Food for thought.

Where is Google headed?

Up. Way up. It is hard to see a scenario where, even if Google pulls back to $650 in the short term, we aren't talking about a thousand dollar stock in 2016. For a growth stock with limited downside and a proven track record, Google looks like the bargain of the century. Worrying about whether you get in at $500 or $750 if Google keeps marching towards the trillion dollar market cap that Apple seems to be racing it to.

Source: Where Is Google Headed? Up. Way Up.