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 (
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
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
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
) 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.