Google Inc (GOOG): A Good Value, But I’ve Got 2 Better Ideas

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I'll state the obvious, Google Inc (NASDAQ:GOOG) has been on quite a run recently. I remember not long ago when some investors including myself were questioning if the company's growth was slowing down. The shares were languishing, and investors seemed to be asking what's next? Over the last few months, this uncertainty seems to have melted away, and the company's current earnings paints a picture of healthy growth. However, because of the stock's run to new highs, I have to say, I see two other companies that look like better values.

Google Inc (NASDAQ:GOOG)This Race Is Over I know that some still believe that the search market is evolving, and that Google Inc (NASDAQ:GOOG) could be replaced by another company. The short version of my answer is, this isn't going to happen. Google still controls more than 60% of desktop searches, and some have even estimated their mobile market share to be as high as 90%. When most users in the U.S. think of search, they think Google Inc (NASDAQ:GOOG).

One concern about Google Inc (NASDAQ:GOOG)'s search business has been the change in their paid clicks versus the cost per click. I've written in the past, that Google is manipulating the cost per click to generate more paid clicks. Look at the movement of paid clicks and cost per click and I think you'll see the pattern:

Quarter Paid Clicks Cost Per Click
Dec. 2011 Up 33% Down 7%
Mar. 2012 Up 38% Down 12%
June 2012 Up 42% Down 16%
Sept. 2012 Up 33% Down 15%
Dec. 2012 Up 24% Down 6%

The pattern looks pretty obvious to me, when the company heavily discounts cost per click, their paid clicks increase. The fact that the company has backed away from this strategy in the current quarter, and still saw a 24% increase in paid clicks says Google Inc (NASDAQ:GOOG) is pretty comfortable with their position in the marketplace. I don't think it's any surprise that during Google's strongest paid click growth, Microsoft Corporation (NASDAQ:MSFT)'s Bing and Yahoo! Inc. (NASDAQ:YHOO)'s combined market share has stagnated.

Growth & Income...Oh Wait...What Income? If investors should worry about anything with Google, it would be the fact that huge revenue growth is producing relatively small EPS growth. In the current quarter, the company's revenue jumped 36%, but non-GAAP EPS increased just 12.11%. This theme seems set to continue, as analysts see revenue up 43.5% this year, but EPS is only expected to increase 14.34% on a year-over-year basis. This suggests the company might want to keep a closer eye on expense management.

For all of Google's revenue and EPS growth, one thing that hasn't shown up yet is a dividend. Given that the company generated $3.65 billion in free cash flow in the current quarter, I have to wonder, what about a dividend? It would be one thing if Google were furiously repurchasing shares, but in the last year, diluted shares have actually increased by 1.82%. This leads me to my main point, without a dividend or significant share buyback, there seems to be better values available to investors. It might be time to take profits in Google and go a different direction.

I Know What You Are Thinking, But Look At The Numbers The two companies that look like better values than Google at the current time are Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). I know some people are going to think I'm crazy, but this isn't about picking stocks based on what has already happened, but trying to figure out where we go from here.

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