Posts Tagged ‘goog’

  • Is Google a Value Stock?
    , May 10th, 2012 at 10:24 am

    Despite all the attention it gets, Google’s stock hasn’t been such a great performer over the past few years. Since its high point in 2007, the shares have mostly tracked the market.

    What’s surprising to me is that the stock seems fairly inexpensive compared to the rest of the market. Consider this: Google is now trading at 12.06 times next year’s earnings estimate. By contrast, the S&P 500 is going for 11.34 times its earnings.

    Given its strong growth, I would think Google would be going for a lot more than the rest of the market.

  • Don’t Invest From 40,000 Feet
    , April 19th, 2012 at 9:49 am

    I read a lot of investment advice on and off the web. One of the mistakes I often see is that investors try to invest from 40,000 feet above their targets. By this, I mean they pay far too much attention to things like politics, seasonal effects or the Federal Reserve.

    I hear people say things like, “I want to hold off investing right now until I see how the election turns out.” I’m never sure what that means exactly. Or they say, “I’d never investment now, not with Helicopter Ben in charge!”

    I realize this sounds like heresy, but the Fed’s role in the movement of stocks is far, far over-rated. What’s more important is earnings and (to a lesser extent) valuations.

    Look at McDonald’s ($MCD). The stock has done very well over the last ten years because its profits have done well. Yahoo‘s ($YHOO) profits haven’t well and the stock has suffered. Sure, there are exceptions, but those are the minority. Valuations, of course, do matter. Overall profits have increased while the market has done poorly.

    Don’t mistake what I’m saying: Monetary policy is important, but even if you knew exactly what the Fed was going to do, that should barely impact your investments. Most investors would be much better off if they ignored all the news about the Fed or politics. People need to believe that someone is in control of the market, and that someone must be in Washington. I hate to break it to you, but they’re not running the market.

    I also hear people say that sure, the market is up over the last three years, but that’s only because it’s been boosted by the Fed. They often say this as if the profits somehow don’t count. Don’t look for confirmation of your political views in the stock market (this is known as the “Larry Kudlow Effect”).

    Since the beginning of 2009, Lowe’s ($LOW) is up about 40% while Home Depot ($HD) is up about 110%. Investors would do themselves a lot more good thinking about how two companies that are so similar can perform so differently or why Starbucks ($SBUX) went from $40 to $10 and is now over $60. What happened there? Google ($GOOG) gets tons of attention but its stock hasn’t outperformed the market over the past few years. Danaher ($DHR) gets almost no attention yet the stock keeps powering higher (even this morning, the AP calls the company a “health care conglomerate“). I don’t think that’s due to Ben Bernanke.

    Ignore the large-scale stuff—anything where it’s easy to have a canned opinion (Obama, Bernanke, Romney). Instead, focus on low level things like one particular company’s sales, earnings and debt.

  • Blast from the Past: Credit Suisse Analyst Raises Price Target on Google to $900
    , February 9th, 2012 at 12:02 pm

    From November 20, 2007:

    Credit Suisse Internet analyst Heath Terry this morning raised his price target for Google (GOOG) to $900, from $800, in what he describes as an “attempt to better account for long-term opportunities in areas like display, local and mobile.”

    Terry contends that “as all advertising goes digital, including television, radio and outdoor, and Google becomes the de facto operating system for advertisers, providing them with the dashboard to monitor and optimize their advertising, tremendous value will be created for Google shareholders.”

    He sees the advertising opportunity driving top line growth of 35% or more, and profit growth of at least 30%, over the next five years.

    Terry upped his 2008 EPS estimate to $18.93 from $18.75.

    He also says that the company eventually will get “effectively” 100% of the Internet search market. He expects ongoing share gains to provide 38% growth in its search business over the next five years.

    Google today is up $25.60, or 4%, to $651.45.

  • Google Smashes Earnings
    , October 14th, 2011 at 11:26 am

    After the close yesterday, Google ($GOOG) reported very strong third-quarter earnings. The company earned $9.72 per share which was 98 cents better than estimates. The stock has gapped up as much as 7.2% this morning and it nearly came close to piercing $600 per share.

    Here’s a look at Google’s stock along with its earnings-per-share. The share price is the blue line (left scale). The earnings is the gold line and it follows the right scale. The red line is Wall Street’s forecast.

    I scaled the two axes at a ratio of 18-to-1 which means that the P/E Ratio is exactly 18 whenever the lines cross. (Note: Please don’t take 18 as my valuation of Google. I just thought the chart looks more readable using that ratio.)

    From early 2010 to this summer’s low, Google’s P/E Ratio has been nearly cut in half. Here are two ifs — if Wall Street’s earnings forecast is correct and if Google trades at 18 times that, then the stock will be at $750 by the end of 2012. That’s a 27% gain over the next 14-and-a-half months.

  • Google Soars on Earnings
    , July 15th, 2011 at 11:40 am

    Last month, I highlighted how inexpensive shares of Google ($GOOG) had become (which was actually a follow-up from a similar post in May).

    I noted that the premium for Google’s valuation was just 8.8% based on this year’s earnings, and 6.5% based on next year’s. Yesterday, the company reported Q2 earnings of $8.74 per share which was 89 cents higher than estimates. The stock has been up as much as $71 today.

  • CWS Market Review – July 15, 2011
    , July 15th, 2011 at 8:10 am

    The second-quarter earnings season has officially begun. Very soon we’ll get a handle on how well Corporate America fared during the second three months of the year. So far, we’ve had good earnings reports from companies like Google ($GOOG) and Yum Brands ($YUM). If all goes well, this earnings season will mark a new all-time record for corporate profits.

    The current earnings record was set during the second quarter of 2007 when the S&P 500 earned $24.06. Not long after, things fell apart in a serious way. The good news is that we’ve recovered strongly. Wall Street’s current consensus for this year’s Q2 is $24.13 which would be a new record although not by much (and less than inflation over the last four years). Still, it’s nearly a 75% increase over the Q2 earnings of 2009. More importantly for us, the S&P 500 is over 15% lower than it was four years ago today despite earnings being higher.

    Let me explain what’s happening. The earnings outlook is still very favorable for most companies. The S&P 500 has a shot of earning $100 this year and perhaps as much as $112 next year. However, earnings growth is decelerating, meaning that earnings are growing but at a slower rate. Second-quarter earnings will probably come in around 15% higher than last year’s Q2.

    This slowing rate of growth is concerning many money managers and that’s part of the reason why the market has been jittery lately. Consider that every day this week, the S&P 500 has closed more than 1% below its high for the day. Simply put, the very easy money has been made. Now folks are madly searching for bargains and anything less than perfection gets tossed aside.

    I’ll give you an example of what I mean: DuPont ($DD) will probably earn close to $4 per share this year. At the low from 2009, the stock was going for just over $16 per share. In other words, DuPont’s stock was going for just four times earnings from just two years into the future! And we’re not talking about some unknown pink sheet listing. This is a Dow component and one of the largest industrial companies in the world. It was a stock screaming to be bought (and yes, I missed it).

    Now let’s look at what’s been happening to DuPont. Three months ago, the company reported very solid earnings for Q1 (15 cents higher than the Street) and raised expectations. So what did the stock do? It went down. Two months after the earnings report, DuPont was trading 10% lower than before its earnings report.

    Don’t get me wrong. I don’t mean to pick on DuPont; it’s a fine company. But I want to show you just how nervous investors have become, especially about cyclical stocks. Since mid-February, the Morgan Stanley Cyclical Index (^CYC) has trailed the S&P 500 by roughly 3.5%. When a stock that’s delivering on earnings is getting smacked around, you know something’s up. The lesson here is that investors have been scared and they’ve been looking for reasons to sell. When the problems in Europe came along, that seemed like as good a time as any.

    What investors need to understand is that the earnings are still out there, but they’re not nearly as easy to find as they used to be. Another example is JPMorgan Chase ($JPM), a Buy List stock, which reported very good earnings on Thursday. For last year’s Q4 and this year’s Q1, I was highly confident that JPM was going to beat the Street’s estimate, and I was right both times. This time around, I wasn’t nearly as certain. Many financial stocks are in rough shape. I’m particularly leery of companies like Citigroup ($C), Bank of America ($BAC) and Morgan Stanley ($MS). I’m afraid their earnings reports will not be pretty.

    The good news is that JPM came through once again. The bank earned $1.27 per share for Q2 which was six cents higher than Wall Street’s consensus. Although Thursday was a down day for the broader stock market, shares of JPM closed higher by 1.84% (and were up as much as 4% during the trading day).

    Similar to the story at DuPont, JPMorgan’s business has been doing well but investors have been skittish of the stock. In this case, the focus is on the bank’s exposure to Europe, although CEO Jamie Dimon has tried to calm those fears. One of the fears going into Thursday’s earnings report was that fixed-income trading had plunged. Fortunately, this was not the case.

    I was especially impressed by the news that JPM is going to float a 30-year bond. No major bank has done that in six months. Bloomberg noted that the market is becoming more convinced of JPM’s creditworthiness. In October, the bank floated 30-year bonds that were 165 basis points higher than similarly-dated U.S. Treasuries. Now that spread is down to 115 basis points. That’s a good sign, so it’s smart to take advantage of the market’s judgment and raise some cash.

    Although JPM has been a poorly performing stock for the last three months, I still like the shares. I would like them a lot better if the company could double its dividend (the Fed would need to sign off on that). The bottom line is that money is cheap, the yield curve is wide and the stock is down. All of that combines for a good case in owning JPM. I’m keeping my buy-below price at $44 per share.

    I don’t know yet when all of the companies on our Buy List will report Q2 earnings (be sure to check the blog for updates), but I do know that three of our healthcare stocks are due to report next week. Both Stryker ($SYK) and Johnson & Johnson ($JNJ) will report on Tuesday, July 19, and Abbott Laboratories ($ABT) will report on Wednesday, July 20th.

    Of the three, Stryker is the most compelling buy right now. The company impressed Wall Street earlier this year when it gave very strong full-year guidance of $3.65 to $3.73 per share. Importantly, they’ve reaffirmed that guidance since then. Even though Stryker beat earnings by a penny per share in April, the stock hasn’t done much of anything. The Street expects 90 cents per share for Q2. That sounds about right though maybe a penny or two too low. I don’t think SYK will have any trouble hitting their optimistic range for this year. Stryker is a good buy up to $60.

    After doing nearly everything wrong, Johnson & Johnson is finally on the right path again. The company recently raised its quarterly dividend for the 49th year in a row. In April, JNJ gave us a strong earnings report and upped its full-year forecast to $4.90 to $5 per share. Wall Street expects $1.23 for Q2; I think $1.30 is doable.

    At the current price, JNJ yields 3.37% which is more than a 10-year Treasury bond. The stock has been in a mostly losing battle with the $70 barrier for more than six years. If next week’s earnings come in strong, I think JNJ will finally burst through $70 for good. Just to be ready, I’m raising my buy price on JNJ to $70.

    Wall Street expects Abbott Labs to earn $1.11 per share for its second quarter. The company has topped Wall Street’s forecast by one penny per share for the last six quarters. I don’t like surprises on my Buy List so let’s make it seven in a row. The company has already forecast full-year earnings of $4.54 to $4.64 per share. That’s a big number and if it’s right (which I think it is), that means that ABT is going for just 11.6 times the mid-point of that forecast. The shares currently yield 3.61%. I’m raising my buy on Abbott from $52 to $54.

    That’s all for now. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  • The Google Carry Trade
    , May 17th, 2011 at 1:41 pm

    Google ($GOOG), which is some sort of technology outfit similar to Alta Vista, has decided to go to the bond market to raise $3 billion.

    Here’s the odd bit: Google is sitting on $35 billion in cash. However, they can’t use most of that since it’s outside the U.S. (they funnel their money though Ireland). If Google repatriates those dollars, they’ll be hit with a massive tax bill. The company is probably assuming that the corporate tax rate will go down in the future and they’re probably right.

    So it’s off to the bond market they go. Naturally, with all that cash, you can be pretty sure that Google is a good credit risk—and the bond market agrees.

    The world’s biggest Internet-search company split the sale evenly between three-, five- and 10-year notes, according to data compiled by Bloomberg. The 1.25 percent, three-year notes yield 33 basis points more than similar-maturity Treasuries, the 2.125 percent, five-year debt pays a 43 basis-point spread, and the 3.625 percent, 10-year securities offer 58 basis points above benchmarks, Bloomberg data show.

    Even though Google didn’t snag a AAA credit rating, the bond market gave them spreads as if they were AAA.

    This is definitely a smart move by Google. Let’s look at Google’s earnings yield (which is the inverse of the P/E Ratio). Based on this year’s earnings estimate, Google’s earnings yield is 6.42%. Based on next year’s, it’s 7.48%. Even going by last year’s earnings, it’s still 5.60%.

    In other words, Google’s yield on its equity is far higher than its yield on its debt. The lesson is to use debt. In fact, I think an interesting trade would be to play Google’s risk premium—go long Google’s stock and short the bonds. This is effectively what a company does when it issues bonds to buy back its stock (or in the 1980s when many companies LBO’d themselves).

  • How Much Is Google Really Worth?
    , May 4th, 2011 at 3:19 pm

    Google ($GOOG) certainly gets a lot of attention but the stock really hasn’t done that well over the past few years. Three-and-a-half years ago, the stock was around $725 per share. Since then, Google has slightly underperformed the S&P 500 (plus the S&P 500 pays a dividend and Google doesn’t).

    So how much should Google be worth? That’s hard to say. Let’s take a very basic look. Wall Street currently expects Google to earn $33.90 per share this year.

    The S&P 500 is currently trading at 13.85 times this year’s earnings estimate. If Google were carrying that multiple, it would be about $470 per share.

    However, Google is projected to grow its earnings faster than the overall market. Wall Street currently expects Google to earn $39.49 per share in 2012. The S&P 500 is going for 12.2 times next year’s estimate. So if Google carried that multiple, it would be $481 per share.

    In other words, Google’s growth premium adds some value but not a whole lot. The current price of $537 assumes a growth premium that lasts well into the future — and in my opinion — too far of a distance to make a reasonable estimate.

    This is a very rough estimate of Google’s price. What I mean to show you is the amount of future growth investors are placing in Google’s price. Sure, it may pay off, but consider that Google’s much-hoped-for future hasn’t paid off over the last three-and-a-half years.