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The Bullish Case for Google

The Bullish Case for Google

Shares of Google (GOOG) hit an all-time high at $920 in late May and have been rather quiet since. While the ebullience in the analyst community has been toned down a little bit, it would be a wild overstatement to suggest the company is a hidden gem. With more than 2/3 of the analyst community rating Google a buy or better and the stock up more than 50% in the last year, prudent investors are wondering if it might be time to lighten up on shares and running a search for better ideas.

Count hedge fund manager Simon Baker of Baker Ave Asset Management among those who still like the shares. "Giddy-pants is a good way to be about Google," Baker says with tongue only slightly in cheek. Baker notes that Google is one of the few big companies with continued success in monetizing search; something the investment community often took for granted until Facebook (FB) showed just how difficult it is.

More intriguing, if harder to value, are Google's blanket bets on new technology. Where Apple (AAPL) has spent the last year making vague promises about new products, Google is seeing tangible if not yet lucrative results in a seemingly endless number of spaces. From a popular operating system to auto technology, radio stations, broadcasting via Youtube and the ugliest glasses ever developed, Google has its toe in just about everything. It's not behavior investors would traditionally expect from a company so dominant in one arena.

Baker scoffs at the notion that Goolge is spreading itself too thin. From his contacts in Silicon Valley Baker hears that companies looking to poach talent continue to hunt at Google, usually to no avail. Google has a reputation for making the best hires in technology then letting those people work on areas that excite them. It's a recipe for keeping employees happy while cranking out interesting, if not immediately profitable new products.

Some object that Google's approach to R&D is a distraction but the company has the money. Huge investments are the smart play for a company with monopoly power in one division. To stay ahead of the game Google is spending more than twice as much money a year as Apple. Almost 1/4 of Google's gross profit goes to R&D compared to a mere 5% at Apple and 17.6% at Microsoft (MSFT).

Google's monster growth days may be behind it but they aren't acting like it. That's a rare combination for a corporation netting more than $10 billion a year; one of many reasons to think Google may beat the curse of high expectations.

[Note: Jeff Macke owns shares of Google]