Google (GOOG) just now reported a solid 4th quarter (GOOG Earnings Release). Revenue after Traffic Acquisition Costs were $4.22 billion and EPS $5.10 – beating analysts consensus of $4.12 billion and $4.95. Shares are up a bit in the after hours.
From a valuation standpoint, Google is very attractive and, like Microsoft, strikes me as being priced for a severe recession. They have $50 a share in net cash and short term investments on their balance sheet. So you get the business for about $250 a share. They earned $19.49 a share in 2008 for a trailing multiple of 13. Even if net income is flat in 2009, a 13 forward multiple for a category killer like Google in a huge growth industry is tremendous value.
So again, it strikes me that there is a margin of safety in buying stocks now as the ones I’m looking at are already discounting a severe recession (see my “A Severe Recession Is Now Priced Into Stocks”, Top Gun FP, October 24, 2008). That’s not to say stocks are poised to go up from here. But it does suggest to me that the downside from here is limited.
Disclosure: Top Gun is long shares of Google (GOOG).