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Motley Fool: Google’s consistent growth merits long-term consideration

Attendees await a keynote address at the Google IO Developers Conference in San Francisco in May 2011. (Associated Press)
Attendees await a keynote address at the Google IO Developers Conference in San Francisco in May 2011. (Associated Press)

Recently sporting a price-to-earnings (P/E) ratio near 25, a market value close to $300 billion and a stock price north of $800, Google (Nasdaq: GOOG) might seem like a stock too richly valued.

Think again, though, as the company still has much room for growth. For one thing, look at its growth rates, as revenue has averaged 21 percent growth over the past five years, and earnings by about 19 percent. Over the next year, analysts expect Google to grow by nearly 18 percent, and by more than 14 percent over the next five years.

Google is perfectly primed to mint money in our increasingly mobile future as its Android operating system has become the global standard in mobile computing. Its profit margins are likely to take a hit as it adds more hardware revenue from smartphones, tablets and laptops, in part due to its acquisition of Motorola. But it remains the global king of searches and a leader in online advertising.

The company’s innovation holds much promise, too – just think of its Gmail, Google Maps and Chrome browser. It’s working on self-driving automobiles now, and launching high-speed Internet and television service in some cities.

Considering how rapidly Google is growing, its stock seems at least fairly valued, if not rather attractively valued. Give it some consideration for your long-term portfolio.

Ask the Fool

Q: Is this a good time to start contributing to a 401(k) account at work? – S.N., Gainesville, Fla.

A: It’s almost always a good time. When it comes to retirement, most of us should be regularly saving and investing, without much regard for the state of the economy. As we’ve been digging out of a recession recently, now is far from the worst time to invest.

Many of us should be saving and investing aggressively, too, not just socking away 3 percent of our salaries. Crunch some numbers and see how much you’ll need in retirement and how much you’ll need to save. You might need to sock away 10 percent or even 20 percent or more of each paycheck. Consider a broad-market index fund for long-term money.

My dumbest investment

I tried my best at swing trading. At the very best, I could stay even, but at times it was terrible. I eventually put my funds into corporate bonds and have recovered. – S.H., online

The Fool responds: Swing trading is generally defined as investing in something (such as a stock) for a few days, hoping to profit from a change, or “swing,” in the price. It’s not as extreme as day-trading, where stocks are often held for just minutes or hours, but it’s not a much more sound approach, either.

Like many day traders and others, swing traders tend to employ technical analysis of securities. Thus, instead of, say, studying the company behind a stock to evaluate its financial health, competitive position and growth prospects, a swing trader will just observe the stock price’s movements, looking for patterns and drawing conclusions from them.

Many of us at The Motley Fool see that as speculation. We prefer to buy-to-hold, investing in businesses via stocks, considering ourselves the part-owners that we become, and aiming to hold on for years, if possible, as long as the investment remains compelling.