Google Inc (GOOG): This Could Be A Problem, Right?

Priced for Perfection

Although Google Inc (NASDAQ:GOOG) shares have come down some over the past few months, they are still trading near all-time highs. With margins already shrinking and Motorola Mobility Holdings Inc (NYSE:MMI) looking as though it won’t live up to the market’s expectations, regardless of the true benefit, downside risk seems notable.

If the company starts to move aggressively into handsets, the downside could be even worse. Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) both look like better investment options right now. Each yields around 3%, which should provide a floor under each company’s shares. Microsoft is more of a turnaround play with a still strong lineup of businesses. Apple Inc. (NASDAQ:AAPL) is more of a fallen angel, though if it can break into emerging markets like China it might surprise to the upside.

The Other Options

Microsoft Corporation (NASDAQ:MSFT), despite a very public miss on the mobile front, has actually seen its top line increase in each of the last 10 years except 2009. Although the company’s profit margin has contracted, too, its shares are trading at a more reasonable level. And, a lot of the company’s spending has been in support of growth initiatives like a new Windows operating system (OS) and a mobile OS. So, there are clear opportunities for improvement if either takes hold. A share buyback and a growing dividend mean you get paid well to wait for this industry giant to get back into the game.

Apple Inc. (NASDAQ:AAPL), meanwhile, has also seen a solid upward trend in earnings, even through the deep recession. Moreover, as the company has sold more and more devices, its profit margins have expanded nicely. That said, it is likely that margin improvement will slow, or even pull back slightly, from here. The real issue now boils down to creating a new product that wows the market or finding a source of new customers.

China is the obvious source of new customers, but that isn’t going as well as Apple Inc. (NASDAQ:AAPL) might like. Still, that game isn’t over and Chinese customers appear to want iPhones based on the sales success at the nation’s third largest cell phone company (the only one that sells the device). There is also the option of a lower-end model, which would probably put downward pressure on margins but that would likely be more than offset by volume gains. A newly initiated dividend and plans for massive stock repurchases mean investors get paid to wait for this angel to regain its wings.

No Easy Answers

There are no easy answers for Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), or Microsoft Corporation (NASDAQ:MSFT). However, of the three, only Google appears to be priced for perfection.

The article A Big Mistake? originally appeared on

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.