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Google Stock Is Heading to $1,000 in 2014

Before Thanksgiving, I wrote that Google (NASDAQ:GOOG) was a lock at $650 a share. After a nearly 25% run since then, shares are red-hot … but could be a bargain again if they pull back under $800.

Because Google stock could hit $1,000 by the end of next year.

A $1,000 price target makes me look like a troll, I know, so let me begin by showing you that nice, round number isn’t insane:

  • That would be a 25% move across about 20 months. That’s not going parabolic.
  • That also would only be modest outperformance if the market gets a tailwind. Consider a 15% move for the market across the next 20 months is very possible given the 13% move in calendar 2012.
  • FY2014 earnings are forecast to be $53.39. That’s a P/E of 18.7 on $1,000 a share — and if 2015 estimates get up around $60, the forward P/E would be pretty fair.
  • In March, Deutsche Bank reiterated its “buy” rating on Google and upped its target to $935. RBC also kept GOOG at “outperform” and set a 12-month target of $950. A few more months and a little more upside to those forecasts gets you to $1,000 pretty easily.

Yes, there’s the risk of buying a top after this run. But Google crested at $844 just a few weeks ago and has seen a 5% pullback from that 52-week high, so this might be your opportunity to get in.

Bigger-picture, here’s what Google has going for it:

  • Streamlining: There has been a lot of criticism lately about Google getting evil. From siccing its lawyers on a European company that offered ad-blocking software to Google charging small businesses for Google Apps to the more recent death of Google Reader, Google has been cutting back on pet projects and inefficiencies. Since co-founder Larry Page took over as CEO in 2011, he pledged to put “more wood behind fewer arrows,” and that march toward efficiency continues.
  • Innovation: Don’t think this means Google is giving up on anything but search and ads. The innovative Google Glass gadget will hit the market in 2013, though clearly it will be too pricey (and dorky looking) to be anything more than an experiment. And Google Fiber is bringing hyper-fast Internet access to the Kansas City area, challenging the entrenched broadband players in America like Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ). Both are clearly in the tradition of challenging technology norms, and while not viable revenue streams yet are surely ideas worth pursuing for their long-term potential.
  • Android and Nexus: With the loss of momentum at Apple (NASDAQ:AAPL), the time is right for Android to tighten its grip on the global smartphone market. That’s saying something, considering that in Q4 2012, Android already was on roughly 70% of global smartphones, according to Gartner. And beyond simply running its open-sourced software, Google is seeing good reception with its Nexus line of mobile devices — including a 7-inch tablet starting at $199 that is giving both the iPad Mini and the Amazon (NASDAQ:AMZN) Kindle a run for the money in the hardware department. Consider that at the start of the year, the Nexus 7 topped the iPad in Japan with 44% market share vs. the iPad’s 40%. Yes, the marketplace is crowded and ever-changing … but Google is gaining ground.

And if you don’t like talking strategy, here are the fundamentals:

  • Video Advertising Growth: A recent Forrester report forecast that spending on online video advertising will top $3.9 billion this year with a 26% compound annual growth rate through 2017. YouTube and Google are right in the middle of that. With Google taking as much as a 45% cut of ads it serves, this is a profitable growth area.
  • Soaring Sales: Revenue has doubled since 2009, from $23.6 billion to over $50 billion in fiscal 2012. Google has a five-year growth rate of 22%, and is projecting another 20% bump to $60 billion by the end of FY2013. If you’re looking to the next earnings report, year-over-year sales for Q1 should jump by 75% if estimates hold.
  • Strong Profits: Earnings have grown year-over-year in six of the last seven quarters — which excludes, of course, that ugly Q3 2012 report with its “PENDING LARRY QUOTE.” But since that selloff pushed shares to a low of $650 in early November, GOOG has been on a tear, with stronger cost-per-click figures helping margins.
  • Alternative Revenue Streams: My favorite stat from January’s earnings included the revelation that “other revenues” hit $829 million on the year, or 6% of total Google sales. That was double the 2011 figure and proof that the company is finding new ways to make money, even if they aren’t substantial to operations just yet.
  • War Chest: As of Dec. 31, 2012, cash and marketable securities hit $48.1 billion … so Google has money to burn.

I am reluctant to chase a stock that has jumped 25% in short order, but this market seems like it will be ready to rally again after consolidation in the short-term. And after some hiccups last year, Google stock itself seems to be hitting its stride with good numbers and good buzz about its products.

You can never tell where consumer technology will lead next. But Google seems as good a bet as any.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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