October 12, 2011 at 08:47 AM EDT
Get Ready to Pounce on Google Earnings
Google is a profit growth machine that's highly undervalued -- even if it doesn't beat in spectacular fashion, GOOG shares should rocket on anything positive.

Search engine giant Google (NASDAQ:GOOG) reports earnings for the quarter ending Sept. 30 on Thursday. The world might seem confusing today, but one thing is certain: Google profits will be strong.

This company dominates the world of search, and its advertising model is useful for any business wishing to grow sales. The targeted approach of search engine marketing works. Google is a cash cow, and its expansion to other markets is paying dividends. The continued growth of the Android operating system also is likely to provide fuel to Google’s story.

Why this stock is down is beyond me, but that is what happens when you throw out the market baby with the bath water. There is no doubt in my mind that Google will beat expectations. As a result, shares will rally.

Google has exceeded average Wall Street estimates in three of the past four quarters:

Google GOOG

For the quarter ending June 30, the company beat estimates by a wide margin, helped in part by exploding smartphone sales. Search advertising, mobile advertising and Android sales were strong. Sales also exceeded expectations in the period.

With the strong report in the last period, Wall Street estimates during the past 90 days have increased to $8.74 for the quarter ending Sept. 30. For the full year, Google is expected to make $35.48 per share. That number grows by 18% to $41.94 per share in 2012. At current prices, shares of Google trade for just 15 times current-year estimated earnings.

Google GOOG
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Shares of Google jumped 12% in the day of trading after it reported June 30 results, but with the market in correction mode, shares slipped. A week ago, the stock was at levels seen before the June 30 report. During the past 52 weeks, Google shares have traded sideways.

I can appreciate the fear and concern in the market, but seeing Google shares flat over the past 12 months has me drooling. All this company does is print money. Profit growth is nearly 20% and the stock moves sideways. Are you kidding me?

Forget about the nonsense with the rest of the market or the economy. Google will do well no matter what. Google makes money every time someone visits its site — and a lot of people visit its site.

Google shares gained 12% after it last reported earnings. I see no reason not to see a similar increase this go-around. Earnings estimates are higher, so the level of the beat this period is likely to be smaller. That said, with the stock down so much since the mid-July, a recovery rally could be in the double digits.

I would buy this stock for a short-term trade in advance of earnings. It is a no-doubter in my opinion.

As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks. His five keys to trading earnings can help you identify winning trades that can make big profits in a short period of time.


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