Scott Kessler has followed Internet companies as an investment analyst at Standard & Poor\'s since 1998. His rating on Google: Hold.
What\'s up with Google? The stock (symbol GOOG) started trading at $85 a share in August 2004 and recently hit $415. Is the run-up justified? Google did an excellent job delivering growth and financial performance. Earnings will grow an annualized 40% for the next five years. Its revenues from Internet search ads are eye-popping, approaching $10 billion this year. Yet the ratio of Google's stock price to its earnings growth rate is 1.3. That's cheaper than the tech average and the overall market.
So the stock's a bargain? No. I'm not telling people to sell the shares, but I'm not recommending them either. In 2006 and 2007, competitive issues will start to have an impact on the company's growth prospects and profit margins. A year ago Google had one decent competitor, Yahoo. Fast forward one year. You've now got a formidable competitor in Yahoo, focused and aggressive competition from Microsoft, and a wild card in Ask Jeeves, recently acquired by IAC/InterActive. I don't think a lot of people appreciate that Google is not diversified in terms of revenues.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Are there lessons we're missing from the dot-com disaster? This stock embodies a lot of strong emotions. Momentum players, who pile in when prices are rising and sell when prices reverse, are getting into Google. Wall Street analysts are by and large very bullish. All this is reminiscent of five years ago, just before the bear market. The obvious distinction is that Google is a profitable, ongoing operation. But when any stock goes from $85 to $415, prudence dictates that you take some money off the table. One of the lessons of the dot-com era is that prudence, more than patience, is a virtue.
Are there Internet stocks you like better? A few weeks ago I would have recommended Yahoo, but its price is no longer reasonable. We see better value in some small and midsize companies, such as IAC/InterActive (IACI). Besides Ask Jeeves, its brands include Home Shopping Network, LendingTree and Match.com. We also like RealNetworks (RNWK), a bear-market survivor and a leading provider of subscription music and games.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
My First $1 Million: Retired In-House Corporate Lawyer, 74Ever wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
How to Give Your Kids Cash Gifts Without the IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for Fall Rate Cuts by the FedThe probability the Fed cuts interest rates by 25 basis points in October is now greater than 90%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
