Dec

6

Last year about this time, during a growth versus value debate, I put together a list of all the companies you could buy for the market capitalization of Google. I thought it might be fun to take a look at the results. Here’s the list of stocks that last December you could have purchased in entirety for the cost of owning Google:

NTGR NETGEAR INC HELE HELEN OF TROY LTD TPX TEMPUR-PEDIC INTERNATIONAL CHK CHESAPEAKE ENERGY CORP FTD FTD GROUP INC WIN WINDSTREAM CORP BKS BARNES & NOBLE INC IGT INTL GAME TECHNOLOGY LXK LEXMARK INTERNATIONAL INC-A NUE NUCOR CORP JAKK JAKKS PACIFIC INC CHIC CHARLOTTE RUSSE HOLDING INC BEBE BEBE STORES INC HRB H&R BLOCK INC HDI HARLEY-DAVIDSON INC KFY KORN/FERRY INTERNATIONAL KG KING PHARMACEUTICALS INC TRB TRIBUNE CO GCI GANNETT CO CECO CAREER EDUCATION CORP

All of these were stocks with one of more of the value characteristics, i.e. low price to earnings, low price to free cash, low price to book value, and were down in price and were on my watch list at the time. As a group they returned over 24% for the year.

Google? Not bad. Up about 17% over the same time.

More interesting to is what you got for your money. Google has reported earnings over the time of $2.4 billion and operating earnings (operating earnings + depreciation - capex) of about $1.8 billion. The portfolio had reported earnings of almost $9 billion and operating earnings of over $15 billion.

And Here is the list for this year. For the Google market cap of $150 billion, one could today buy in entirety:

MarketCap: WLT WALTER INDUSTRIES INC $2191m, PBY PEP BOYS-MANNY MOE & JACK 751, HAWK PETROHAWK ENERGY CORP 2151, FINL THE FINISH LINE-CL A 662, OPMR OPTIMAL GROUP INC-CL A 207, NSHA NASHUA CORP 50, PDS PRECISION DRILLING TRUST 3175, FDC FIRST DATA CORP 18410, BGP BORDERS GROUP INC 1351, FRN FRIENDLY ICE CREAM CORP 93, NYT NEW YORK TIMES CO -CL A 3451, CNX CONSOL ENERGY INC 6720, FDG FORDING CANADIAN COAL TRUST 3248, IPAS IPASS INC 375, KFS KINGSWAY FINANCIAL SERVICES 1258, ADCT ADC TELECOMMUNICATIONS INC 1658, UNTD UNITED ONLINE INC 872, CHK CHESAPEAKE ENERGY CORP 14735, AMAT APPLIED MATERIALS INC 25639, NBR NABORS INDUSTRIES LTD 10037, PTEN PATTERSON-UTI ENERGY INC 4226, RSH RADIOSHACK CORP 2348, GFF GRIFFON CORPORATION 713, MU MICRON TECHNOLOGY INC 11195, HCBK HUDSON CITY BANCORP INC 7721, CBS CBS CORP-CLASS B 24010, GY GENCORP INC 800, PSUN PACIFIC SUNWEAR OF CALIF 1388, ROSE ROSETTA RESOURCES INC 959, MIR MIRANT CORP 8048.

Google has about $3.5 billion in operating earnings, whereas the portfolio sports $16.5 billion or so. If Google can continue to grow at 30% a year for seven years their operating cash flow will surpass that of the portfolio… providing the portfolio rate of return remains stagnant and none of the excess $13 billion of operating cash flow is reinvested at any reasonable rate. Should the portfolio rate grow at the 10% level, not unrealistic considering the amount of excess available for reinvestment, it takes Google 10 years to surpass in operating cash flow. Again, assuming Google can grow at 30% for 10 years and no one comes along with better or new technology and reduces their competitive advantage. Of course we all know that in the stable world of technology that is unlikely to happen.

This is a very back of the envelope study, and the portfolio companies are picked because I know them and they all have one or more value characteristics.


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