At a time of slow growth in the world economy, companies that can generate
robust, organic growth through innovation stand out from the crowd. After
blowing away earnings estimates after the bell Thursday, it's clear that
Google (NASDAQ: GOOG ) is doing just that. The tech giant soundly beat estimates
on both the top and bottom lines, delivering $7.51 billion in revenues versus
estimates for $7.22 billion and reporting an EPS of $9.72 that obliterated the
consensus $8.74. The company continues to dominate the search business, and it
threatens to render Yahoo (NASDAQ: YHOO ) and Microsoft 's (NASDAQ: MSFT )
Bing irrelevant in this still fast-growing segment. Paid clicks rose 28% (versus
expectations of 17%), its mobile business more than doubled from a year ago, and
the company reported over 40 million users for its Google+ social network. Even
CEO Larry Page said he was "taken aback" by the popularity of Google+, which
is only four months old. It's this kind of growth that makes Google safe to
own as we await more clarity on the outlook for the global economy. Google is
one of premiere companies in the small universe of stocks that can reliably grow
through the worst-case economic scenario. The stock certainly isn't immune to
the risk on/risk off trade, as gauged by its 20% decline in the July-August
correction, but its strong growth profile makes it a name that institutional
managers can own without concern for "career risk." This helps make Google a
strong candidate to outperform if we hit another rough patch before the end of
the year. Click to Enlarge Companies that put up the kind of numbers we're
seeing from Google should warrant a premium multiple, but the stock still
isn't trading far above the broader-market P/E. Prior to Thursday's report,
Google was changing hands at just 13.3 times 2012 estimates versus about 12 for
the S&P 500 and a PEG ratio of 0.8. Even after the post-earnings run-up, the
stock is reasonably priced given its growth prospects and rock-solid balance
sheet. On this basis, one could argue that Google doesn't deserve the
performance gap it has experienced versus Apple in the past two years.
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