I never thought I’d see the day when I’d be recommending Google Inc (GOOG) as a contrarian play. But it is definitely an unloved stock that seems poised to rebound in 2015.
GOOG stock missed out on the big rally that all its rivals had in 2014. Apple Inc. (AAPL), Facebook Inc (FB), Microsoft Corporation (MSFT) and Baidu Inc (ADR) all surged. Even perennial turnaround stock Yahoo! Inc. (YHOO) had a solid year. The purple portal needs to thank Jack Ma and Alibaba for that.
To be fair, some of the bearish sentiment regarding Google makes sense.
Facebook is nipping at its heels in the online ad race. The social network has been particularly aggressive on the video front, which could be bad news for Google’s YouTube.
It wasn’t a great year for Android, as Samsung lost market share while Apple enjoyed a nice comeback with the launch of the iPhone 6 and 6 Plus.
And some investors may be growing tired of Google’s seemingly wanton spending on acquisitions and research and development. Google wound up selling Motorola Mobility to Lenovo this year for a fraction of what it paid for it just a few years ago … and then turned around to invest more on connected thermostats, drones and satellite mapping with Nest, Titan Aerospace and Skybox Imaging.
But this is still the mighty Google we are talking about. It has more than $62 billion in cash and remains the world’s leader in digital ad revenue.
Why Google Stock Will Lead in 2015
I ran several stock screens to try and figure out what to write about for this feature. I looked for companies with attractive valuations, solid sales and earnings growth prospects, little debt and a healthy return on equity. I was expecting to find some beaten down consumer stocks. And I did. General Motors Company (GM) and Michael Kors Holdings Ltd (KORS) both popped up on my screens.
But I couldn’t pass up on Google. The stock now trades for just 17 times 2015 earnings estimates. Its P/E is pretty much in line with its expected earnings growth rate.
It’s also worth noting that Google has been through periods where investors have shunned it before. And the company has always had the last laugh. Motorola may turn out to be the exception and not the rule for Google. Nearly all of its other acquisitions have been huge successes, including YouTube, DoubleClick and Android.
Yes, an investment in Google is a big leap of faith. You are trusting that Larry Page, Sergey Brin and Eric Schmidt will continue to do the right thing for the company for the long-term. That means that they may do things that hurt profits in the short run.
But they’ve more than proven to Wall Street that they deserve every benefit of the doubt.
Now I wouldn’t be caught dead wearing a dorky-looking Google Glass. But investing in Google? There’s nothing nerdy about that.