Google Still One of the Best Stocks to Buy

by Jim Woods | October 24, 2013 8:45 am

goog google stockWhen asked to take a look at Google (GOOG[1]) with my investing prognostication hat, I tried hard to come up with reasons why GOOG stock isn’t likely to continue its incredible bullish run.

But if you own Google stock, or if you are thinking about buying GOOG shares now, rest assured that my quest for reasons not to like the stock was an epic fail.

Last week, GOOG reported blowout third-quarter earnings, with EPS driving in at $10.74, a 19% year-over-year increase and well above consensus estimates for EPS of $10.36. Google also reported revenue of $14.89 billion, a 12% increase and also better than Wall Street was anticipating.

Perhaps the biggest news, though, was the 13.8% surge in Google stock last Friday, a move that vaulted GOOG above the psychologically significant $1,000 mark. Year-to-date, Google shares are up more than 45%, more than double the performance of the S&P 500.

The bump in GOOG was a rising tide that lifted many Internet stocks, including fellow sector bellwethers AOL (AOL[2]), Facebook (FB[3]) and Yahoo (YHOO[4]).

For Google, the confluence of positives is, in my opinion, more than enough of a reason to jump aboard the stock even at these lofty heights.

Big Tailwinds for GOOG

The first of these positives is Google’s dominant position in the mobile Internet market, with its Android OS-powered phones. The company now has an estimated 70% market share in the mobile OS market — a market that is expected to double over the next five years.

A second huge positive for GOOG is increased revenue from its website, which was up 22% year-over-year in Q3. That’s the fastest pace for revenue growth since Q1 2012, and it shows how management is able to successfully manage market conditions. The company also saw a big increase in YouTube video ads of some 75%.

And perhaps the most important part of the Google stock bull case is its breaching of the $1,000 mark — a move that has everyone on Wall Street, and now also on Main Street, talking about GOOG stock and how much higher it’s likely to go.

When a company and its stock gets into the public zeitgeist like this, it’s usually either the end of a bull run or the beginning of a much more intense buying spree that can take the shares significantly higher from here. I suspect in the case of GOOG, it’s the latter.

I have a pretty good memory, and I remember last year when Bank of America downgraded GOOG over concerns that the company might not be able to grow its mobile ad revenue sufficiently. Well, this quarter’s report proved that call wrong. It also proved that outstanding Google management knows how to redirect the company’s focus to exploit growth opportunities.

Finally, considering GOOG is trading at a relatively modest 19 times forward earnings estimates; yesterday’s closing price of $1,031.41 for Google stock seems like a great bargain here. I suspect GOOG could be another 20% higher over the next six months, and perhaps much more if the company delivers future quarterly earnings beats similar to Q3’s stellar metrics.

I therefore think that my 12-month price target of $1,240 here represents the conservative bullish case, and one I am eminently confident in setting for Google stock.

As of this writing, Jim Woods did not own any of the stocks mentioned here.

  1. GOOG:
  2. AOL:
  3. FB:
  4. YHOO:

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