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Google: Buy And Hold Forever?

 May 10, 2012 01:12 PM

(By Paul Tracy) Google (GOOG) is included on my list of the "10 Best Stocks to Hold Forever". It  is one of the most dominant companies on the planet.

It controls an estimated 45% share of the online advertising market -- in addition to its dominant position in online search, email, and mapping tools.

Google seemingly has its hands in every aspect of the web, but it's the company's advertising platform that makes it one of the most profitable firms I've ever seen.

In 2011, Google earned $37.9 billion in revenue, of which $24.7 billion turned into gross profit, for a margin of 65%. That profit is one reason the company now carries a cash stockpile of more than $50 billion -- or a staggering $154 per share.

[Related -Google Inc (GOOG) Q4 Earnings Preview: What To Watch?]

Recent quarterly results show just how much more growth there is in the future for Google. Despite being a $200 billion company, it was able to grow revenue 24% year-over-year and net income rose 61%.

Google also recently announced a 2-for-1 stock split... with a twist. It plans to issue a new class of stock that will trade under a different ticker symbol. Every investor will receive one share of this new class of stock for every share of GOOG they currently own.

Given this, if you own Google's stock, then you can expect the share price to be half as much after the split, but you'll own twice the number of shares (as of now, no date for the split has been set).

But there is a big difference with this new class of shares -- they carry no voting rights like the traditional common shares do.

[Related -Boost Your Dividend Yield]

Google is not hiding the reason behind this. In a statement, the company's founders made it clear they want to ensure they maintain power over the company's voting rights, effectively removing themselves from the outside influence of activist shareholders.

I believe public companies have an obligation to put their investors first. At first glance, Google's stock split appears to go against that belief.

But Google's co-founders, Larry Page and Sergey Brin, and its Executive Chairman Eric Schmidt, already control a majority of the company's voting. In effect, the split will change nothing right now in respect to voting power.

Action to Take --> Google continues to dominate the fast-growing Internet advertising field and continues to grow quickly despite its size.

Given that the unusual share split doesn't change the fact that company leadership already holds a majority of the voting power, I still believe the stock is a great long-term holding.



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