Bull/Bear Report: Google Stock -- Time to Buy or Stay Away?

There is no bigger endorsement for an investment decision than being derided by a fairly large audience. It's the ultimate high for a contrarian investor and validation that my analysis is most likely on target.

That was certainly the case for me when I jumped on the Google (GOOG) bandwagon when shares traded in the low $300's.

How could I help myself? My analysis suggested that the stock was worth $700 and when a stock trades for less than half my target value, I buy. And when a stock trades above my target I typically sell.

Well, what happens when a recommendation makes the round trip like this week's bull/bear selection GOOG? I asked InvestorPlaceBlogs bloggers to tell me whether or not GOOG was a buy sell or hold.

Before October of 2007, the future for GOOG was looking bright with no end in sight. The collapse of the housing market followed by a crisis in the credit markets resulted in equity participants becoming very nervous.

Since then, of course, the stock has dropped from a high of $747 to trading in the $400's. Does this mean it is time to buy Google again?

As is typical at the end of a bull market, stocks go up to unsustainable levels and then fall hard. That is especially the case with fast growing momentum plays like GOOG.

The concern for me is that the current sell-off in GOOG is more than a temporary correction. Specifically, I worry that increased competition will slow growth to a point whereby today's price would still be too high.

Even after dropping by a large percentage, GOOG still trades for what would be considered a high valuation. Such a state is not a problem if the company can grow earnings in excess of 30% per annum, but it could be a problem if growth slows.

In essence, there is a good argument for both sides of the coin here. Certainly 30% growth is within reach for a proven innovator like GOOG. At the same time, I can see growth slowing to the teens.

It could be that the price may be just right here given the circumstances. At least that's how I see things for GOOG. You'll have to read the bull and bear cases and decide for yourself.

Bull Case - Don Barrett

Google,founded in 1998, is a technology company which maintains a host of on line web sites and on line search engine Google. Google has become the major player,dwarfing Yahoo and all the other on line content sites. Google has grown organically,but major gains will be made through acquisitions. Google acquired You Tube last year and they currently are waiting on FTC approval on Double Click. They are also considered a probable high bidder on the wireless spectrum to provide mobile internet content that the FTC is currently auctioning.

Google's 4th quarter 2007 revenue increased 51% to $4.83 billion compared to same quarter a year ago.The 4th quarter 2007 netted Google $1.21 billion or $ 3.79 a share. Googles 4th quarter international revenue increased from 44% to 48 % of total income or $2.32 billion. Google is projected to grow revenue by over 36 % over the next 5 years. Google has a current PE of 32 with a forward projected one year PE of 17.

Future earnings will be enhanced by acquisitions such as You Tube and Double Click. The international market has tremendous potential and should improve revenue by 5 to 10 % per year for years to come.In December 2007,Google reported a sharp increase in revenue from Apple I-phone mobile on line usage. If Google is the high bidder on the FTC auction for mobile on line access,it will be a great revenue source for the future. Double Click should be another revenue source by the latter part of 2008.

Is Google a good investment? I would have to say yes. I think Google can increase revenue by at least 40 % for at least the next 3-5 years. The international market has just begun to emerge. The acquisitions will begin to produce this year.And,if Google is the high bidder on mobile wireless internet provider,this may be the biggest income source in the future.
The only limit on future Google earnings is the FTC and other governing bodys. The future is looking very bright for Google and don't bet against Larry and Sergey!

Bear Case on Google Stock - Randal LaBinestrong>

When I Google "GOOG" in my stockpicking brain, the result is a list of questions.

1) Why buy a "slowing growth" stock in a market that is punishing slowing growth stocks?

2) How can I trust the analysts (and their estimates) on GOOG? Price targets, according to Yahoo! Finance, range from $590 to $900. Why not $400? Why not $1000?

3) Is GOOG too big? Can GOOG monetize YouTube? The space program?

4) Why buy a stock that, as Dennis Gartman would say, is moving from the upper right to the lower left on the chart?

I can't answer any of those question in a positive way, so I can't bring myself to buy it. Under $400 I might change my mind, not because I think it's a good "value" at that price (I have no idea what price GOOG warrants), but because I think other investors would see it as value and I could go along for the ride. It would be a short term trade only, and I'd only consider it if the Nasdaq were bouncing. In fact, the Nasdaq probably needs GOOG, and vice versa.

So, I'm a bear on Google for now, mostly because I'm a bear on the market in general, outside a few select areas that are not in clear downtrends. I concede that some value investors might be able to catch a bottom in GOOG, but I'm not nearly smart enough to be one of them.

Both of these arguments make sense to me. In a rare moment of efficiency, the market probably has it just about right here with GOOG. What does that mean?

For me, I would prefer being a buyer at a slightly lower price and I certainly would not sell at these prices. I guess that's another way of saying hold.

Jamie Dlugosch
Executive Editor, InvestorPlaceBlogs

by Hillary Mark |  03/13/08  |  Stocks: goog,