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GOOG Stock Watch — Why Google Is a Great Buy Now

Google (GOOG) has been on my radar all year, and back in January I said that GOOG stock was a steal around $700 a share … and shares have climbed almost 25% since then.

And even after the run-up, with Google stock approaching $900 a share, I still think GOOG is a great buy.

Here’s why:

Hardware hopes: While it’s too soon to tell whether the Moto X is a big flop or a big hit, it’s undeniable that Google is running hard at hardware, and that it’s determined to get into the smartphone space. As for tablets, its Nexus 7 device has equal or better specs than a comparable iPad Mini from Apple (AAPL) that starts at $100 more in price. And the recent halt of Nexus 7 sales in the Google Play store hints at a refresh in the coming month that could further move Google forward in tablet market share. With a dominant Android OS running on a host of mobile hardware, GOOG stock could soar if it connects this with hardware sales.

Relative valuation: The valuation is a little pricey for GOOG stock right now compared to some other tech companies, with a forward P/E of 17.2 based on FY2013 forecasts. But that doesn’t mean it’s not fairly valued based on its personal history. Check out how the multiple has been steadily dropping over time. Compared with a few years ago, where the earnings multiple was in the mid-20s or even the 30s, 17ish for GOOG is in fact pretty good.

Renewed focus: There’s a general sense that Google is getting serious about its stock, with a focus on killing projects that don’t deliver and being a bit more aggressive on earnings and competition. Sometimes that brings criticism about GOOG breaking its “don’t be evil” mantra, as when it killed the niche Google Reader product, focused on paid YouTube channels and Google Offers businesses with a clear revenue goal, or charged small businesses for Google Apps to boost profits. But GOOG stock ultimately benefits from execs at the company treating it … well, like a publicly traded stock. And bigger picture, keep in mind that Google grows revenue year-over-year like clockwork even while many other companies struggle with their top line these days.

Innovation: From the launch of the Moto X to continued efforts with Google Fiber internet connectivity to the Chromecast, Google is tackling new areas of the consumer tech landscape with the same tenacity as ever. And while investors can take comfort in things like valuation and an eye to the bottom line, ultimately they will be served best by Google  products have a long-term impact instead of a short-term benefit. As long as GOOG innovates like it always has, it’s hard to bet against this company.

Scale: Consider that a brief outage in mid-August gave us a rare glimpse into how much internet traffic runs through Google — theoretically, about 40%. That 4 in 10 web clicks go through GOOG is a simply mind-boggling statistic, and an incredible opportunity for this company to grow by branching out into other areas. Say what you want about soft display advertising or the rise of channels like Facebook (FB) and LinkedIn (LNKD) as information filters — the scale of Google remains pretty much unbeatable.

Cash king: Google has a rock-solid balance sheet, with cash and investments totaling about $56 billion. Operating cash flow is pushing $16 billion. Yes, GOOG critics will point out not all overseas cash is readily accessible … but it’s still sitting pretty with a very secure balance sheet.

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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. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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