When I started writing this post it was my intention to make this a list post, with a brief overview of several companies I’m considering buying at some point in the future. I like to keep my blog posts relatively brief so I decided to split the original post into a little series called The Watch List.
This series will not include energy stocks as I already have more than enough oil & gas related stocks for the time being. Stocks I already own aren’t part of the scope of these post but if opportunity arises I’d like to increase my positions in several stock, including Coca Cola (KO) and Unilever (ULVR).
This is far from a dividend growth stock, in fact they don’t even pay a dividend, but since Google won the search engine war in the early 2000s it has always been one of my favorite companies. In many ways Google had a tremendous impact on the Internet but in its early days no one expected the company would become what it is today. That is until Google came up with its ingenious, wildly profitable advertising model and turned into a company generating billion dollar profits.
Google was almost the first stock I bought sometime in 2005 but I was a total newbie to investing and didn’t go through with it. Partly because transaction costs in my country were so high back then but also because Google’s share price continued to soar. Looking back, it would have been a major winner as its share price more than quintupled versus a decade ago. But as I had no real strategy back then, had I bought it I would probably have sold it a long time ago after a double-digit gain.
Mayhaps they’ll initiate a dividend sometime in the future to return cash to the shareholder, they’re currently sitting on almost $70 billion in cash, but this is far from certain. The company seems intent on growing in all sorts of directions, no matter how crazy, especially with the new Alphabet corporate structure.
If Page and Brin can continue to work their magic, perhaps Alphabet may eventually turn into a tech-oriented version of Berkshire Hathaway. Although there are worries Google does not take shareholders at heart as some see several moves of the company as a way for the founders to increase their control (see the Google share classes) and as a method of reducing scrutiny over the countless unrelated and/or profitless projects the search firm has.
Then again, crazy investments are what made Google what it is today. Twelve years ago Google bought Applied Semantics for $102 million in an effort to improve its online advertising technology. That acquisition turned into Google’s Adsense advertising program and is now pulling in quarterly revenue north of $3.6 billion and hundreds of millions in profit.
With revenue growth slowing to the low teens (partly due to currency impact) and a P/E of around 33 a large investment in this stock seems hard to justify. However, if analysts are correct Google’s growth profile places the forward P/E for 2016 at a much more reasonable figure of just under 20.
I’m not sure if I’m going to initiate a position anytime soon but this is one of the few non-dividend paying stocks I’m considering for my portfolio.