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Google Stock Will Soar in 2015 – 7 Reasons to Buy GOOG

Google Inc (GOOG, GOOGL) is one of the biggest names in tech, and is synonymous with Internet search. However, Google stock has suffered for much of the past year.

google goog headquarters sign 630 ISP

Source: ©iStock.com/LindaJoHeilman

GOOG stock has declined about 15% from its February 2014 highs despite a roughly 10% gain for the S&P 500 in the same period.

One of the biggest reasons for weakness in Google stock lately has been reactions to a weak Q3 earnings report in October. And as we approach its earnings once more, many investors are worried that this tech stock could disappoint yet again.

But I think that Google stock could do well in its upcoming Q4 earnings report. And more importantly, I think GOOG stock has a lot to offer longer-term investors who are willing to buy on a dip and be patient.

Here’s why I like Google for 2015 — and beyond:

Negativity Priced In: Google’s 15% share price decline since February has come even as revenue continues to march impressively higher. Yes, Google has missed forecasts lately, but expectations have been reset and investors are no longer fostering unrealistic expectations.

Valuation Is Fair: Also consider GOOG trades for a forward price-to-earnings ratio of about 17.5 based on FY2015 earnings forecasts. That’s in line with the 16.6 forward P/E for the S&P 500, and significantly below the earnings multiple of 17.9 for the tech-heavy Nasdaq-100. Equally interesting is that Google had been sporting a P/E ratio of about 20 for much of 2013 and early 2014, so the current level is a discount to where the tech giant has historically traded. Thus, Google stock might be a bit elevated, but it is hardly overbought.

Cash King: Google is behind only Microsoft Corporation (MSFT) and Apple Inc. (AAPL) when it comes to cash stockpiles, with nearly $65 billion in cash and investments. That’s a huge chunk of change — and when you back out the cash and investments, the forward P/E of Google drops to around 14.

Growth by Acquisition: Speaking of cash, Google is not afraid to spend that money to grow. Recent purchases include the $3.2 billion buyout of Nest Labs about a year ago as an effort to further integrate technology with the home, an area many tech observers say is the next big thing for electronics. If that sounds wacky to you, consider previous purchases include Android mobile software in 2005 way back before we had even seen an iPhone, a then-unprofitable YouTube in 2006 and advertising platform DoubleClick in 2007 … so let’s not write off all Google’s deals as boondoggles.

Growth by Innovation: Don’t forget about Google’s home-grown projects as well, including Google Fiber Internet access that is competing with the likes of Verizon Communications Inc. (VZ) and Comcast Corporation (CMCSA) in select markets. These efforts are expensive and hold back profits now, but could result in massive returns down the road for Google stock holders if successful.

EU Antitrust Risk Is Overblown: Perhaps the biggest threat to Google in 2015 is the threat of antitrust sanctions in Europe. But given the pressures in Europe as the continent struggles with the risk of a triple-dip recession, it’s not unreasonable to expect political priorities to shift. Remember, in the wake of Edward Snowden’s infamous disclosures, there was a big backlash in Europe across 2014 as legislators bristled at the pervasiveness of U.S. technology companies. Consider the rather absurd bit of German regulation from November that threatened to (somehow) break up Google from afar. But in 2015, I believe legislators will be much more focused on deflation fears and core economic issues … and the antitrust bluster may very well fall by the wayside.

Mobile Dominance: Google might not be awash with profits from its mobile operations, but its footprint is remarkable. Consider that, according to digital analytics firm NetMarketShare, Google’s search engine dominates with a whopping 91.5% of global market share! That’s in large part because it also dominates smartphone operating systems around the world, with Google Android boasting more than 84% market share in smartphones shipped for Q3, according to IDC. Mobile is the future and clearly Google is dominant in this space … even if it is still figuring out how to monetize its market share.

There’s a lot of focus on “cost per click” metrics and short-term earnings trends at Google right now. But clearly there are a lot of reasons to like GOOG stock in 2015.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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