Go To

Is Google A Buy?

Over the last couple months, I’ve shown you many stocks to avoid.  Here are a few…

Stocks to consider buying.  Here are a few of them…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

But most only think of investing well. 

Today, I want to show you 3 Reasons To Buy Google – And 1 Not To– so you can protect your retirement portfolio.

Google (GOOGL) owns the world’s dominant search engine owning an estimated 86.9% market share search market share as of July 2020.

It owns the Google Chrome internet browser which owns an estimated 69% market share of desktop internet browsers as of June 2020.

It also owns an estimated 86% of smartphone user interface market share as of September 14th, 2020 with its Android platform.

And it also owns the world’s second largest search engine in YouTube with an estimated 2 billion monthly active users.

These are only the highlights of the many products and services it owns.

It dominates these arenas so much that as of this writing it’s parent company Alphabet is the world’s 4th largest stock with a $1.1 trillion market cap.

Because of its dominance, it earns huge profits and cash flows which is reason #1 to consider buying its stock.

Google Earns Huge Profits

Over the last decade it earned an average operating income margin of 26.3% per year.

I look for anything above 10% on a consistent basis… Why?

Because after evaluating thousands of companies over the last 14 years I estimate fewer than 5% of all companies in the world produce consistent operating profit margins above 10% over extended periods.

Another way to show you the power of Google is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 22.4% per year on average.

I call this the “Cash Machine” metric.

If companies are consistently above 5% on this number, it’s a business that spits out a ton of cash.

Google surpasses my thresholds on both important metrics.  This not only makes it an incredibly safe investment.  But it also means its one of the best operating businesses in the world in terms of profits and cash flows.

These profits also allow it to continually reinvest in operations which is how it’s become so dominant.  

The high profits and cash flow also give Google another layer of safety.  Its businesses are largely protected from negative effects of the coronavirus… Which is reason #2 to consider buying its stock.

The Coronavirus Won’t Harm Google

People may stop paying their mortgages.

They may stop paying their credit cards.

They may stop paying their vehicle loans.

And they may stop paying their student loans.

Because of the economic issues we’re now dealing with today; people may stop paying these things if they need to.

But people won’t stop using the internet… They won’t stop using their cell phones… And they won’t stop watching videos on YouTube.

Especially since people have more “free time” than ever while stuck at home. And this will continue with the pandemic still raging in the US and worldwide as of this writing.

This gives enormous stability to the company in these highly uncertain times… Which also allows it to have ultra-low debt levels.

This is reason #3 to consider buying its stock.

Google Has Almost No Debt

With Google being the 4th largest company in the world based on market cap you might expect it to have a ton of debt… But it doesn’t.

As of this writing it has only $16.1 billion worth of debt compared to $121.1 billion in cash.

This is possible due to the huge profits and cash flows it earns from its dominant competitive advantages.  Combined with the stability of the coronavirus not harming its business.

The three things I’ve already talked about make it a safe investment to consider buying…

But what about its valuation?  Is it cheap? 

Google Is Not Cheap

This is the one reason to avoid Google stock right now…

  • Its current P/E is 34.5.
  • Its current P/CF is 19.6.
  • And its current forward P/E is 28.5.

I look to buy stocks with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Google is above this threshold.

Why below 20?

Because that means it’s at worst fairly valued… And if its significantly under 20 that means its undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have a better chance of earning higher returns owning its stock over time.  And these things combined make it a less risky investment.

With Google being overvalued it means there’s far less margin of safety owning its stock.  This means you have a lower chance of earning high investment returns owning its stock going forward.  And these make investing in it riskier.

Even with all the wonderful things I said about it above considered.

Conclusion

If you’re looking for a solid, safe, stable, dominant, and enormously profitable stock to protect your investment portfolio – consider buying Google… But only when it’s cheaper.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

Comments are closed.