Google Shows Off Rock-Hard Reliability
Google crushes earnings estimates and shows growth across its numerous businesses -- its stock should boom in the short term, and GOOG is a sturdy long-term play.

At a time of slow growth in the world economy, companies that can generate robust, organic growth through innovation stand out from the crowd. After blowing away earnings estimates after the bell Thursday, it’s clear that Google (NASDAQ:GOOG) is doing just that.

The tech giant soundly beat estimates on both the top and bottom lines, delivering $7.51 billion in revenues — versus estimates for $7.22 billion — and reporting an EPS of $9.72 that obliterated the consensus $8.74. The company continues to dominate the search business, and it threatens to render Yahoo (NASDAQ:YHOO) and Microsoft’s (NASDAQ:MSFT) Bing irrelevant in this still fast-growing segment. Paid clicks rose 28% (versus expectations of 17%), its mobile business more than doubled from a year ago, and the company reported over 40 million users for its Google+ social network. Even CEO Larry Page said he was “taken aback” by the popularity of Google+, which is only four months old.

It’s this kind of growth that makes Google safe to own as we await more clarity on the outlook for the global economy. Google is one of premiere companies in the small universe of stocks that can reliably grow through the worst-case economic scenario. The stock certainly isn’t immune to the risk on/risk off trade, as gauged by its 20% decline in the July-August correction, but its strong growth profile makes it a name that institutional managers can own without concern for “career risk.” This helps make Google a strong candidate to outperform if we hit another rough patch before the end of the year.

Google GOOG
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Companies that put up the kind of numbers we’re seeing from Google should warrant a premium multiple, but the stock still isn’t trading far above the broader-market P/E. Prior to Thursday’s report, Google was changing hands at just 13.3 times 2012 estimates — versus about 12 for the S&P 500 — and a PEG ratio of 0.8. Even after the post-earnings run-up, the stock is reasonably priced given its growth prospects and rock-solid balance sheet. On this basis, one could argue that Google doesn’t deserve the performance gap it has experienced versus Apple in the past two years.

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