In the early part of this decade, I was the president and CEO of a very successful asset management firm. As one of the few firms focused on value investing, we had a field day finding stocks to buy in the collapse of the dot com boom.
Today, we face a collapse of a different sort, and it is leaving a landscape littered with value.
One of my former analysts said to me the other day that an investor could do very well buying 100 cheap, blue chip quality stocks that can be expected to do well as the economy bottoms and ultimately recovers.
He's right. The huge number of deals allows for a great degree of selectivity. A value investor today can buy the best of the best in a diversified portfolio that will mitigate risk. It does not eliminate risk, but the strategy seems quite rational to me.
One of the best-of-the-best names that I think should be a core holding in any portfolio is Google (NASDAQ: GOOG). This technology behemoth dominates the search space and is expanding its reach to Internet navigation and software. It is taking the fight directly to Microsoft (NASDAQ: MSFT) and it appears to be making headway. MSFT has been trying desperately to catch up with moves, including the failed takeover attempt of Yahoo! (NASDAQ: YHOO).
On Tuesday, MSFT seemed to indicate that it was no longer interested in buying YHOO. That is a major mistake that greatly benefits GOOG. A deal in search only would be a complete and utter mess. MSFT had been willing to pay $33 per share for the entire company a few short months ago. Now it's not interested. Such a statement shows hubris and ego at Microsoft. MSFT should be focusing on how to compete with GOOG, and while the attention is on search at the moment, the bigger issue is navigation and software. That's why buying all of Yahoo makes the most sense to me -- buying search does not guarantee success. The managerial distraction is allowing GOOG to operate in the shadows, slowly but surely building more power.
Here is an interesting tidbit that I gathered from the auto industry bailout hearings yesterday in Washington. While everyone else was focused on the big picture about a possible bailout, one of the CEO's mentioned that big-dollar advertising would be cut back. Instead, they will be focusing on targeted and more cost-effective marketing tools. Guess who will benefit from that effort?
Google.
GOOG and its advertising search model will not be impacted by the economic slowdown like other companies. It is simply too valuable to the equation. No company will cut an expense that adds value, and that is exactly what GOOG does -- and does very well.
Before the credit crisis hit in late September, I had suggested that GOOG was a bargain trading around $450. Today you can buy shares for $277. That is a steal in my book.
I'd make GOOG a core holding and take advantage of these discounts before they disappear.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
11-20-2008 @ 8:00PM
nick said...
Here we go a reporter trying to run up the stock, must have a big bunch of the stock. They are over value by about 75 more dollars.
11-20-2008 @ 8:49PM
Unknown said...
So how about some analysis from either of you to support some numbers? Maybe some growth projections, next year EPS, etc?
11-20-2008 @ 9:11PM
beachpaul said...
Goog already has been a steal. Ask anyone who bought it the last eight quarters. They were robbed.
11-21-2008 @ 4:57AM
al coholic said...
Let me get this straight. You are bragging because you recommended Google at $450? I'm sure that makes all who paid for your your advice and watched the stock fall to $277 really happy.
11-21-2008 @ 6:23AM
Dan Barnett said...
You can learn alot by the disclosure statement. If it states that the writer actually owns some of the suggested stock, I am much more likely to follow his advice.
11-21-2008 @ 8:30AM
Pasta Fasulo said...
One more schmuck who is hallucinating. Its people like this wannabee/amateur who have costed many people their entire savings. I am sure, and I say this with an effort to remain accurate , not ironically, that this moron things Berkshire Hathaway was also a steal earlier this week at 100,00 a share, before falling about 16,000 per share in two days.
11-21-2008 @ 8:59AM
David said...
With enough hype it is possible to convince anyone that a company on the verge of bankruptcy is a good buy. Wall Street has done it every day for months and look at the results. Anyone with half a brain wouldn't put ten cents in this manipulated market. The valuations are nothing but hype without any basis in facts other than the opinion of the brokerage houses trying to unload the stock of these companies. The only legalized scam in the world.