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Google or 3M? Take Your Pick

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You're going to get a choice, a choice that involves two very different stocks in the news lately. One of these just hit an all-time high, and the other is within striking distance of its best-ever price.

The first is Google (GOOG), in the headlines for, among other things, the perceived superiority of its maps program over Apple's (AAPL) version. The second is 3M (MMM), which has made a deal to buy Ceradyne (CRDN). With both stocks doing well, here's an exercise to get you pondering your personal investing strategy when it comes to individual stocks. For just a moment, let's take a break from Europe, the fiscal cliff, the election, the Federal Reserve's asset levitation, and consider only two companies and a simple question: If you could pick one share of either Google or 3M to hold for the next five years, which one would you take?

One company, Google, could be considered a proxy for technology. It's heavily involved in Internet services, software and hardware. 3M, meanwhile, could be considered a standard for the market overall. It's a diversified industrial, a member of the Dow and a dividend-paying stock.

3M, Google and S&P 500 Chart

If you think tech is the future and you like digital stuff, you might lean toward Google, the owner of the massive search engine and one of the largest U.S. companies, with a market cap of roughly $250 billion. If you own it, you can make money through stock price appreciation, and that's it. If you like physical stuff and the prospects for the old economy, plus the fact that a dividend can add to stock gains or help offset a decline, maybe you tilt toward 3M. Plus, that dividend has been raised every year for more than half a century.

Google went public in August 2004 at $85, and since then it's up roughly 600%. In the same time frame, 3M (which listed on the NYSE in 1946) has risen 15.5% through Friday's close at $92.42. But it also paid $15.91 in dividends, for a total return of about 35.4%. Regardless, the advantage definitely goes to Google, which reached an intraday high of $764.89 on Sept. 25. 3M's best point was $97.97 on July 7, 2011.

Personal risk tolerance is certainly going to factor in, and if you suspect Google is the more volatile of these two, you're right. However, it's actually not a tremendous spread when looking at the recent volatility of the two stocks compared with the market overall. The market, measured by the S&P 500, has a beta of 1.0. Google's beta is now 1.17, and 3M comes in at 1.02.

In the seven full years since Google went public (we're excluding the partial year 2004 and this year), its annual range has been significant, averaging a move of nearly 98% between its low and its high, FactSet data show. The smallest the range has ever been was last year, at 36%. 3M's average yearly range is 43% from low to high, but interestingly, in 2011 it had a larger move from low to high -- 38% -- than Google did.

On the sales line, 3M has a five-year compound annual growth rate of 5.3%, according to FactSet, with net income at 2.1%. Google's sales CAGR is 29%, and its net is 25.9%. Again, Google's clearly the leader. Looking at the multiples, neither stock is particularly out of line with the consensus expectation for the S&P 500. The index's forward P/E stands at 12.6, while Google is at 15.8 and 3M is a 13.6.

Does Google retain the edge for the future? In all likelihood, it's going to be the faster grower in terms of fundamentals. However, you might sleep better at night with a 3M in your pocket if you worry about tech's ability to withstand economic uncertainty and you feel better with the slow and steady approach.

Now clearly, much, much more goes into valuing and comparing stocks than the questions covered here, and that can't be overstated. We all know that what happened yesterday or last year can have little or no bearing on what's to come. But if this serves as a starting point to get you thinking more deeply about the hows and whys of your investments, that's a good thing.

So let us know what you think. Would you take Google or 3M over the next five years?