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Thursday, October 31, 2013 - 11:30
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Thursday, October 31, 2013 - 11:30
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Thursday, October 31, 2013 - 11:30

This 'Forever' Stock Jumped 13% In A Day

Thursday, October 31, 2013 - 11:30am

Twenty-four billion dollars.

That's how much the political theater in Washington cost the American public according to Standard and Poor's. The agency expects the loss will shave about 1% off fourth quarter GDP growth.

But alas, investors can breathe a sigh of relief as it's now apparent the U.S. won't be defaulting on its Treasury payments -- at least not yet. According to estimates by the Congressional Budget Office, the bill that raised the debt ceiling and reopened the government should keep the U.S. funded for at least another four months.

While the short-term resolution is akin to the proverbial "kicking the can down the road" (setting us up for the same debate come February), the markets have nonetheless rejoiced on the news...

In the weeks that followed the debt agreement, the S&P touched a record level of 1,766... gold rallied 7% to $1,350 per ounce and the yield on the 10-year treasury fell to 2.5%.

As the euphoria from the announcement wears off, the market is turning its attention to what will likely be the biggest financial event over the next few weeks... earnings season.

In case you didn't know, third quarter earning season is alive and well... And of the companies that have reported figures so far, we've already seen some shocking numbers.
One of the biggest surprises was Google (Nasdaq: GOOG), who reported earnings on October 17. Not only did the company announce earnings of $10.74 (smashing analyst expectations of $10.34), the internet giant also reported a 36% jump in net income. Most of the gains are attributable to an increase in the company's paid-click advertising.

The stock surged 13% within hours of the announcement, breaking past $1,000 a share for the first time in company history.

Google is a classic example of what we like to call a "Forever" stock.

If you're a regular StreetAuthority reader then you know "Forever" stocks are enormous, cash-rich companies with big competitive advantages that have a history of outperforming the market year after year. They're known for generating thick profit margins and billons of dollars in cash flows, allowing them to reward shareholders with rich dividends and big share buy backs. Due to their ability to hold up in both good times and in bad, we usually say we wouldn't mind owning these companies "Forever..."

As the largest on-line advertising company in the world and pioneer of the globally popular search engine, Google is one such company.

Unfortunately, we often find that most investors don't want to hear about large "blue-chip" companies like Google. Since stocks like these tend to move less than 1-2% on any given day, many investors find these kinds of investments "boring."

That's a mistake. While these companies might not be "sexy" like high-flying tech start-ups or risky bio-tech plays, their year-over-year stability, big competitive advantages and lasting commitment to making shareholders wealthier has made them some of the best performing stocks on the market -- regardless of their size.

Take Google for example. Since the company went public in 2004, its stock has delivered total returns 911% -- or 29% annually. To put that in perspective, every $1,000 invested in the company since its IPO would be worth over $10,000 today.

Now I know what you're thinking. Google is one of the stock market's biggest success stories of the last 10 years. Of course it's had unprecedented success since its IPO... The stock's performance must look different over a shorter time frame.

Wrong.

Including Google's 13% gain two weeks ago, the stock has returned over 47% in the past year -- more than doubling the S&Ps 24% gain over the same period.

It's the same story if you look at out over the last 2-year, 3-year, and 5-year periods as well.

Regardless of how you measure the numbers, Google has continued to hand investors outsize gains... despite the fact that it's worth over $300 billion.

Of course, the key to investing in "Forever" stocks like Google is to buy them when they're cheap. After the recent surge, Google stock is starting to look expensive. At a recent price of $1,019 a share, the company is trading at a P/E ratio of 27.7 -- significantly higher than the S&P 500's long-term average of 15.5. As a result, conservative investors might be wise to wait for a pullback before taking a position.

Note: While Google may look expensive right now, there are plenty of other "Forever" stocks currently trading at better valuations. In fact, right now one of our favorite "Forever" stocks is trading at a P/E ratio of just 14 -- despite turning every $20 invested in the company back in 1972 into over $30,000 today. To learn more about this stock -- or the rest of the "Forever" stocks on our list -- follow this link.

Austin Hatley does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.