Highlighted Stock with Solid Fundamentals: Google

I have read and followed value investing and stocks for a couple of decades, and what I have found is that it can work, even for a common investor. This blog post is in a planned series of highlighted stocks of publicly traded companies that I have personally determined to have solid fundamentals for value investing. This means that they have passed overall the test of the list of checks that I have given in my investing guides: “Your Ultimate Investing Checklist to Screen for the Best Company Stocks,” as well as “How to Successfully Approach Long-Term Investing and Screen for Individual Stocks By Value Investing.”

I am going to give you a general overview of the companies, as well as their financial fundamentals, and allow you, if you are interested, to do further research to find out more information about them, to see if they might fit in your investment portfolio. Keep in mind that there are many well-run companies out there, and I am only reviewing a limited number of them, so my hope is that you can use these summaries as examples in how you look at the fundamentals of other businesses, also, to help determine if they may be a good investment for you.

Highlighted Company: Google (NASDAQ: GOOGL or NASDAQ: GOOG)

General Overview

Google is an American multinational technology company and a subsidiary of its parent company, Alphabet Inc. Though best known for its dominant search engine, the company offers a wide range of internet-related products and services.

Google's product portfolio extends far beyond its search engine. Its offerings are generally categorized into three main segments under Alphabet: 

• Google Services: This includes popular consumer-facing products like the Google Search engine, Android mobile operating system, Chrome web browser, YouTube, Gmail, Google Drive, Google Maps, and the Pixel line of consumer electronics.

• Google Cloud: This segment offers enterprise-level cloud computing services, including AI infrastructure, data and analytics tools, and Google Workspace (the office suite formerly known as G Suite).

• Other Bets: These are Alphabet's more experimental ventures outside of Google, which have included projects related to quantum computing (Sycamore), self-driving cars (Waymo), and life sciences (Calico). 

Google maintains its durable competitive advantage through several powerful "economic moats" that are difficult for competitors to replicate. These advantages include its network effect, high barriers to entry, an expansive product ecosystem, and significant data advantage in AI development. (Google AI Overview)

Financial Fundamentals

• High return on equity

• Increasing revenues

• Increasing net income and earnings per share

• Decreasing outstanding shares (share repurchases)

• Low long-term debt and high cash-on-hand

• Increasing retained earnings and shareholder equity

• High and increasing net margins

• Increasing free cash flow

  (Macrotrends)

Synopsis

Google should be considered a growth stock, with its increasing earnings and share repurchases. You can purchase shares of GOOGL (which includes voting rights) or GOOG (which does not). While Google is a technology company, it has an established and diversified business model that has strong growth and solid long-term potential.

Price Check

Use the chart on the website given below, to try to value GOOG’s intrinsic value, and the margin of safety at different earnings projections, and the current price:

https://www.gurufocus.com/stock/GOOG/dcf

1. On the middle left of the page, choose Earnings per Share (EPS w/o NRI), or free cash flow (FCF). The FCF has a lower given intrinsic valuation, but you can decide whether you want to have a more conservative analysis or not, or whether you want to take the average price of both types of valuations. You may want to change the growth rate under “Growth Stage” to a lower valuation of about 12-15%, to be conservative, since it may be difficult for such a large company to grow earnings at such a high rate.

2. On the line below, you can adjust the discount rate, which gives your desired average annual rate of return.

3. The other prepopulated values should be appropriate, so you can look at the meter in the middle of the page to determine your buy price, and the estimated margin of safety.

To look up other stocks, you can go to https://www.gurufocus.com/dcf-calculator

Here’s an article by The Motley Fool that sums up Google as an outstanding company in which to invest:

This Artificial Intelligence (AI) Stock Has big Potential and a Surprisingly low Price

To learn more about investing in stocks of solid companies at reasonable prices, you can go to:

Rule #1 Investing

Joseph Carlson Show

Note:

You may want to have your stock investments be part of an overall financial plan, as outlined in the financial life area of this website. You may also want to hold your stocks for a minimum of about at least 3 years, since they can fluctuate in the near-term, but usually track earnings over the long-term.

If you are not comfortable with investing in individual stocks, you may instead choose to invest in a broadly diversified index fund or ETF (exchange-traded fund), to benefit from being in the market, while mitigating your risk.

In general, here is an excellent article regarding “conservative”to “aggressive” portfolios, based on your time frame and risk tolerance.

There are also "target-date funds" that balance out your portfolio as it goes along, according to your requested timeline and risk tolerance.

An investing method that is recommended for most people, by famous value investor, Warren Buffett, is to put your money into a fund that matches the S&P 500.

As far as how often, and how much to invest in funds, the general recommendation is to do it periodically, by dollar-cost averaging, with the same amount of money at each time period - such as weekly, biweekly, or monthly.

Whatever type of fund portfolio you choose, make sure that you keep the administrative and management fees low, as these can greatly erode your returns over the long-term.

Disclaimer: This article is meant for informational and example purposes only. I do not have any personal association or investment in this company, or GuruFocus, or receive any compensation from them, or the mentioned securities. I am not a financial advisor, and am not promoting the purchase or sale of any kind of securities. Securities such as stocks, bonds, and ETF’s can fluctuate with market conditions, and investor sentiment. Also, I recommend that investing in stocks should be done within the framework of a comprehensive financial plan, with risks taken into account. You may also want to consult with a Certified Financial Planner.