Google is one of the giants of the new Technological Era. In particular, it is probably the most powerful company in the “www” business. Many of the new era IT companies hardly have income, and boast of a supposed good future. It is not Google´s case, which is a company consolidated in its market with real income and business. We can say that, contrary to the Nasdaq bubble and many of its companies, Google is not a bubble. Although the stock has risen more than 1000% in ten years, it has been a rise based on one of the most prosperous business of the XXI century.
I believe it is not a mistake to say that Google has a long way to go before it enters in its “elderly” years, something that every company will experience sooner or later. For instance, the American car companies, or the railroads giants, which were the Googles of before, and even Microsoft, that will never be able to grow again like in the eighties or nineties.
Google´s business seems quite solid. Its internet model looks indisputable. The search engine – the most known and popular in the World – seems to not having a serious rival in the near future – except in local markets like Russia or China. The only threat comes from government antitrust laws, specially from the EU, where the seems to be a crusade against the “monopolistic” practices of Google. Depending on that fight Google shares will do worse or better, although the European market will tend to lose weight in the medium term.
Sales seem to grow year after year, as well as its net profit. Financial data seem to back the thesis that Google is a company with a good future. However, it is probably that the best bull market period of the stock is already behind. Not many stocks can rise more than 1000% in ten years, and repeat it later, although anything can happen.
Even Warren Buffett said that it is not the sort of company he likes to invest in since he does not know the business. It is well known that Buffett does not like to invest in technological companies. He likes businesses that he can “study” better. Nonetheless, who knows what the Oracle of Omaha will do in the future? Perhaps Google will not be the “technological” company in the future, but it may be too far for Buffett.
The economic cycle and Google
Despite being one of the “conservative” stocks that I like for the medium and long-term (10 to 20 years), I think this is a very dangerous moment to invest. We are in the beginning of 2015 and the American stock market has been rising for five years, almost without interruption. The problem is that it has not been a timid bull market, but one of the best five years runs ever: Nasdaq going up more than 300%, and the SP500 more than 200. The SP500 performance is similar even to that of the nineties. Any time the stock market has raised so much, a bear market has come. In other words, it is very likely that a big correction is due.
Kondratiev cycles also say that it is probably not a good time to invest in stocks for the long-term. According to that theory, it is possible that the worst part of the kondratiev winter is yet to come.
We should remember that in 2008, Google fell almost a 70% in the worst moments of that terrible bear market. What happens if another bear market comes? Would Google investors resist if the stock falls a 70%? These questions seem easy to make, but difficult to answer. According to Bernanke or Yellen, no more bear markets should ever exist. In that case you just go long forever and do not worry. The second question presents some problems. Some people might buy the stock just before a great bear market starts, and sell the stock in pain after it has fallen a lot, just in the worst moment. Not many guys can stand a 70% fall without wrecking their nerves.
However, and contrary to other stocks or sectors, I think that even if a great bear market comes, it is likely that Google is one of the companies that could survive well to it. It could even fall an 80 or 90%, but with the future recovery, I think it could behave well. It is not a stock that will make us rich probably, but without a doubt it is one of the best and most solid businesses nowadays.
To invest or not to invest in Google, that is the question. I do not even know what to do myself.
P.S. This is a personal translation from my Spanish blog www.brokerparacompraracciones.com.
Thanks for reading and sharing.