Every once in a while, various styles of investing can converge on a single stock, and that’s the case with a new buying opportunity I have for you today.
Internet search and advertising giant Google (GOOGL) is a technology behemoth and a growth stock, which would normally mean higher valuations that take it far out of the value category. But GOOGL has been in a corrective mode the last few months, falling 17% from its summer high of $609 to current prices around $500. The sell-off has been driven largely by concerns over higher costs to boost web traffic, as these costs have been squeezing profit margins.
We’re all about buying stocks at a discount, and in the spirit of bargain hunting at this time of year, GOOGL now gives us an outstanding opportunity. It currently sells at 16.6X expected 2015 earnings, which is very close to the P/E ratio for the market as a whole and much cheaper than GOOGL usually sells for. With that, earnings growth of around 15% or more is likely in the years ahead as the Internet continues to take a great share of advertising dollars and more business is conducted in a digital manner.
I also like the balance sheet, as the company has net cash of $53.5 billion, or nearly $80 a share. That’s a huge cash hoard, accounting for 16% of the current market value.
I’m sending you this Flash Alert because now is a good time to buy. The stock is back down to where it traded more than a year ago, and in the past, buying GOOGL on pullbacks has produced strong results. With EPS growth expectations for 2015 very reasonable at 17.5% ($30.40 vs. $25.87), I see history repeating the pattern.
Buy GOOGL under $525 for a target of $600. Please note: These are the Class A shares and GOOGL is the correct symbol. I am not recommending the Class C shares that trade under the symbol GOOG. I will have more in next week’s issue.