Can you find profits with Google?


Can you find profits with Google?

Kevin Kersten 10/07/2013

People are always searching, looking for something. Shoppers are looking for bargains, investors are looking for stable, growing stocks, and travelers are looking for directions. Whatever your need for information, one company has done a superior job of organizing the world's information: Google ( GOOG ).

Many people just think of Google as a search engine that changes its logo in creative ways, but it is so much more. Google is a search engine, and arguably the world's best, but it is so much more. Google has Google maps, Gmail, Adsense, Google Chrome, Android and now even Motorola phones. The company is working on many new, cutting-edge products and some day it may even drive your car for you.

Most people probably think it's farfetched that Google might drive you down the road. Google already gets you to where you want on the information superhighway, so why not take you there in-person. It is hard to imagine what a future cross-country road trip might be like, with Google driving your car so you can surf on a Google tablet, seeing ads for restaurants and attractions that you will soon be approaching. Streaming video and informational summaries of all the attractions could be right at your fingertips.

If you are one of those people playing with your cell phone while driving, then you may already be using an Android operating system, Google maps, and Google voice search to find your way around town. You may well be notified as new messages ring into your Gmail on the way. If you have not figured it out, Google is here to stay. The company has cracked the advertising formula to the internet, figured out optimal ad placement and come out with many new products that consumers have used. Not every Google product has been an instant success, but so many have been, the company is a powerhouse.

There is a strategy behind all these innovations. Gmail allows the company to know a lot about you and what you are doing. They scan your email for keywords and then display ads they think you will find interesting.  To say they read the email might be a bit strong, but they do match ads to it.  Google maps was not the internet's first mapping program, but it was one of the first to allow location-based search and now has folded a lot of advertising into it. This advertising is targeted to people who are going to be in the area so it is a more effective than regular ads.

The Android mobile operating system competes with the iPhone. On a numerical basis, there are more Andriod phones than iPhones worldwide, but the battle may not be over. Google gets a lot of information on a user directly from their smartphone, but also uses the device to deliver ads to on the move consumers. Google can craft the phones, craft the way the ads work and sell the advertising to companies.

At first it might be easy to dismiss the Google self-driving car as just a futuristic publicity stunt or obsession of a mad technology billionaire. Computers can do almost everything faster and better than people can, it only makes sense that someday they will be able to drive better than we can as well. With faster reaction times, better traffic information, and the ability to log every pothole in the road; I would not be surprised if Google will be able to deliver me to the door of an advertiser for a minor fee sooner than I expect. Maybe one day, everything will be provided by Google!

The Google story is fantastic. Over the last 10 years, the company has gone from $1.4 billion to $50.1 billion in revenue. Analysts expect business to grow by 19% in 2013 and 15% in 2014. Online advertising grew 15% in 2010, 22% in 2011 and 15% in 2012. Over the last five years the stock has risen to $888 a share and earnings have grown from $13.00 a share in 2008 to over $32 a share in 2012. Analysts are projecting earnings of $36 a share in 2013.The market capitalization of Google is $237 billion and the company has about $48 billion in cash on the balance sheet.

While Google has been doing well, it does operate in the tech space where innovation and obsolescence can happen quickly. Apple ( AAPL ) just released an upgraded iPhone 5 in a market where any competitor could invent a better, cheaper faster phone or operating system. Politicians fussing over budgets could shut down the government and could stall the economy or print too much money and change tax codes in such a way it might adversely affect the company. While the economy has been slowly recovering, a change in direction could greatly affect online advertising revenues causing rates to plunge as consumers stop buying. Something as simple as a correction in the stock market could bring price levels of all stocks down. There are risks, but you might be hard pressed to find other companies that have done as well as Google at avoiding them for a long time.

Chart courtesy of

With Google entrenched into every part of consumer lives, you might want to try to get a little more out of owning the stock. You can buy the stock at $888 a share and then sell the January 2014 875 call for $46.90 giving you an $841.10 net debit. This will have a 4% assigned return over 108 days or a 13.4% annualized return rate (for comparison purposes only). Because the stock is at $888 now it can fall to $841.10 before you start losing money giving 5.2% downside protection. To write a standard covered call it would probably be prohibitively expensive as 100 shares would cost $84,110.  However, for Google and a few other select high-priced stocks, new mini options are available that cover 10 shares of stock. That way, an investor can buy 10 shares cover them and get the same percent returns for on a smaller $8,411 investment.  That may just be the way an average investor can find higher returns when they search with Google. Not everyone has the cash to put so much money in one position and still retain the balanced portfolio they want.

Covered calls sell the upside potential of a stock so you do not want to do this strategy with stocks that you expect will shoot up, or fall. Stable stocks allow investors to comfortably harvest premiums when the stocks don't move as much. Even if the stock falls the covered call investor will lose less than just owning the stock and if the stock rises a covered call investor will see his full targeted return.

Check with your broker, but expect standard commissions to still apply. Trading in smaller contracts will increase commission costs, but given the price of this stock it should be minor. Mini options also tend to have slightly wider bid ask spreads. At the time of writing, the ask was a dime more, but that is so little it doesn't pay to redo the calculations.

It is hard to imagine life without Google today, even though I can remember those days. Google's great results have come from a lot of hard work, great technology and integrated advertising delivered at just the right time. Selling a covered call on Google stock is one way to search for more returns. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

Originally published on

This article appears in: Investing , Options

Referenced Stocks: AAPL , GOOG



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