Is Google Inc (GOOG) A Good Stock to Buy?

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Google Inc (NASDAQ:GOOG)’s stock price fell in the first half of 2012, to around $560 in late July. The stock then rallied to about $750 in early October before a disappointing- and untimely- quarterly report took the stock down below $700; that figure is about where Google currently trades. Google had reported a 19% increase in revenue in the third quarter compared to the same period in 2011, but partly because of the addition of the Motorola business unit earnings decreased by 20%. Pay per click ad prices also showed troubling signs, and we’ve noticed Google trying to improve its operations at its core business. Read more about one of Google’s new ad ideas.

After that quarter, Google Inc (NASDAQ:GOOG) trades at 22 times trailing earnings, which would be in line with a large, well-branded, growing company. It looks to us like the decline in net income has been as a result of adding the Motorola business, and we wouldn’t expect earnings to decline further going forward. Instead, we’d look for growth in the core Google business as well as possibly an improvement in Motorola as the company is integrated. Of course, it’s not clear that growth would be high enough to justify the current valuation. Analyst expectations for 2013 imply a forward P/E of 15.

LONE PINE CAPITAL

Google was the second most popular stock among hedge funds during the third quarter of the year (see the full rankings). Since Apple Inc. (NASDAQ:AAPL) was the #1 stock, this means that Google was also second on our list of tech stocks hedge funds were crazy about. Stephen Mandel’s Lone Pine Capital sold shares in Google during the third quarter of the year, but the fund still owned 1.1 million shares at the end of September and this made Google its second largest 13F holding by market value (find more of Lone Pine’s stock picks). Mandel is a billionaire and a Tiger Cub, having worked for legendary investor Julian Robertson at Tiger Management. Billionaire George Soros initiated a position of about 190,000 shares in Google Inc (NASDAQ:GOOG) during the quarter (check out more stocks Soros was buying).

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