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

There are two simple reasons these companies look like better values. The first is, their growth and income relative to their current P/E ratios. Google pays no dividend and trades for about 17.15 times projected 2013 earnings. This gives the company a PEG ratio of 1.25. Apple on the other hand, has a PEG of just 0.55, with a forward P/E of 10.46 and expected earnings growth in the next few years of 18.98%. Apple’s over 2% yield is just a nice kicker to this value. While Microsoft’s PEG of 1.17 is only slightly lower than Google, keep in mind, Microsoft investors get a yield of 3.3%, whereas Google investors get nothing.

The second reason these two companies look like better values has to do with their cash generation and the cash on their balance sheets. Look at the value of their respective cash and investments as a percentage of their market cap:

As you can see, Apple has 66.99% more relative cash to market cap value compared to Google, and Microsoft has 81.06% more. This might not mean much if Apple or Microsoft were burning through cash, but in their current quarters, both companies added billions to their respective balance sheets.

The bottom line is, investors buying Apple or Microsoft get a yield that Google does not offer, better relative values, and more cash per dollar of market cap. While Google has been on an impressive run, there is no guarantee this run will continue. Google may still do well, but I can’t help but think Apple and Microsoft may do better in the near term.

The article A Good Value, But I’ve Got 2 Better Ideas originally appeared on Fool.com and is written by Chad Henage.

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