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Buy Google at $375 -- Because the Stock Is Headed for an Apple-Like Decline

Stocks in this article: GOOG XOM AAPL MSFT

NEW YORK (TheStreet) -- Last week when Google (GOOG) released its Google Glass to buyers, it changed my perception of the company. I removed my rose-colored lenses to better assess where Google is going. The company is trying to be everything to everyone. But it can't work.

Back in February, with a market cap then at $391 billion, Google surpassed Exxon Mobil (XOM) to become the second-most valuable company in the world behind Apple (AAPL). (The market value  and shares outstanding figures below are in millions.)

The chart above shows how Google's market squeezed past Exxon by around $722 million in February. Around that time, the search giant received investor applause for announcing a 2-for-1 stock split, which took effect on April 3. Also, on Feb. 6, Exxon had just disappointed investors by announcing weak profits for its January quarter. Google shares then traded for a pre-split price of $1,165.30.

Google stock would continue its uptrend until peaking at well over $1,200. But along with all of the excitement, investors also feared the worst. As with Apple shares more than a year prior, Google shares showed signs that they had peaked.

It's useful to remember that two years ago, prior to Apple shares peaking at $705, analysts tried to one-up each other with their Apple price targets. Brian White of Topeka Capital was one of several analysts with a target of  over $1,000 on Apple stock. Shortly after White issued his target of $1,111, Stuart O'Gorman of Henderson Global raised his Apple target to $1,200. It became a dangerous game to see who could outdo the other.

Shortly after Google stock broke $1,200, we saw a similar pattern. Analysts at Cantor Fitzgerald raised their price target on Google from $1,260 to $1,300. Citigroup was next, with a price target of $1,300.00. At the time, this suggested a potential upside of 15% for the stock. Analysts at Evercore Partners raised their price target on shares of Google from $1,400 to $1,450.

In total, 20 firms assigned a buy rating on Google, with an average price target of $1,201.53. In their minds Google could do no wrong, even though the company was coming off a January quarter during which it missed earnings estimates. In January Google reported earnings per share of $12.01, missing estimates by 20 cents. 

But since those recommendations and the stock's 2-for-1 split, Google has shed $30 billion in market cap. At the same time, Exxon Mobil has grown its market cap by $43 billion. The search giant has fallen to third place on the most-valuable company list and is now less than $30 billion ahead of Microsoft (MSFT) for fourth place. During that span, Microsoft has grown its cap by $32 billion.

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