This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Google Seems Wired and IBM Seems Tired

Stocks in this article: GOOG IBM KO

NEW YORK (TheStreet) -- One great way to analyze Google (GOOG) is to contrast it with IBM (IBM - Get Report).

Both companies dominate a niche.

IBM dominates in mainframes, which are still sold for high-volume applications such as transaction processing. The relative value of that dominance, however, has been falling and will continue to fall, as the move to cloud computing accelerates.

Google dominates search, which means it dominates advertising. The relative value of that dominance keeps growing, and it's Google that has led the move to the cloud.

The impact of this has only come to investors in the last few years.

Both companies more than doubled in value from the depths of recession in early 2009 to the start of 2012. But since the first trading day of 2012, Google's shares are up 70% while IBM's are up just 4%. Investors are now willing to pay about 31 times Google earnings for a share of its stock. IBM's P/E is a market-trailing 13.

Google's money machine lets it engage in speculative development ventures such as  Google Glass. I laughed when co-founder Sergey Brin first started showing these, but they're starting to turn into a real product, with this week's Consumer Electronics Show appearing to be a "wearable electronics" festival.

Wearables are the next step beyond devices, and Google aims to dominate devices by being the low-cost provider. Although more than 80% of Americans now use the Internet, market researcher Asymco notes, only one in three do worldwide. 

By being the low-cost provider of both Internet services and devices, through its Android line, Google hopes to catch the largest share of global Internet growth. Outside China, which still tries to remain closed to Google's embrace, the company brings $1.20 to its bottom line from each Internet user every quarter, Asymco says

Just as IBM's marketing-first approach made it vulnerable to the first "kid with a clue" in the 1990s, the kid then being named Bill Gates, so that same approach, applied to software and services, has made it vulnerable to another kid with a clue in this decade, a kid named Larry Page, who turned 40 last year.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs