The Superior Internet Play

The Internet will continue to be one of the best places for growth investors, going forward. My number-one long-term stock in this area continues to be Internet powerhouse Google Inc. (NASDAQ/GOOG), which is valued at a whopping $146 billion — not too bad for a company that made its IPO debut on August 19, 2004. I’m still kicking myself for failing to pull the trigger when Google was at $100!

 Google’s success has been largely driven by the turnaround in the online advertising market that has generated tons of cash. In fact, the company derives the majority of revenues from its advertising programs. Google is a play on online advertising. The company has also overtaken rival Yahoo Inc. (NASDAQ/YHOO), which is struggling to compete. This is why you need to stick with Google– it’s the best of breed in its space.

 The trend for online advertising remains positive. Google is currently the top stock in its class. Its annual growth is superlative. Its estimated five-year annual earnings growth is 30% versus 23.50% for Yahoo. Google’s current valuation remains attractive versus its peer group.

 Google is trading at 25.62x its estimated FY07 EPS of $18.42 versus a more expensive 43.67x for Yahoo. Google’s PEG ratio, including the free cash of $36.16 per share, is an attractive 1.09 versus 2.46 for Yahoo. Discounting the cash, Google’s PEG ratio would decline below 1.0, a simple indication of value.


 At this time, Google is easily the superior Internet play. Momentum stocks like Google do well as long as the company can delver the extraordinary growth that investors have been accustomed to. Any deviation from this could drive sellers to the exits. But there’s no doubt about it, Google is a premier Internet play.

 You can place a limit order to buy Google. There is some major support at $400. Buying on major dips would make sense for Google. You can also trade Google by buying longer-term call options or bullish call spreads.