The Google ( GOOG) rally has stalled out, but investor interest is still there. After more than doubling in both 2004 and 2005, Google is down 7% this year. But on the eve of the two-year anniversary of the Net-search titan's record-setting IPO, Google seems to be winning back some important supporters. During the second quarter, institutional shareholders bought 12 million more shares of Google than they sold, according to data from InsiderScore compiled from SEC filings. This may be a sign that professional investors are heeding the advice of most Wall Street analysts, who still consider the stock a buy. Analysts' median target price for Google, which has more than 300 million shares outstanding, is $500, according to Thomson Financial. Among the funds that snapped up Google are Loomis Sayles, which more than doubled its stake in the second quarter to 1.2 million shares, InsiderScore says. Northern Trust increased its holdings by 85% to 2.2 million shares, while Barclay's added 13% to its stake in the Mountain View, Calif.-based company. Barclay's now owns 9 million Google shares. There was selling, too, of course. Fidelity, Google's largest shareholder other than the company's founders, sold 446,000 shares, trimming back its position by less than 2%. It still owns more than 24 million Google shares. Legg Mason, whose superstar fund manager Bill Miller continues to champion Internet stocks even though they are out of favor, upped its Google position by 1.7%, or 94,000 shares, to 5.6 million.
Perhaps the professional investors are drawn to Google's valuation on a price-to-earnings growth. On that basis, Google's multiple is 1.28, compared 2.18 for Yahoo! ( YHOO). Other big-cap names with lower growth rates are trading at a similar multiple, such as Microsoft ( MSFT) with 1.3 and eBay ( EBAY) with 1.13. "It is still a high valuation -- reasonable given its growth rates -- but high,'' says Chuck Jones, who helps manage $16 billion for Atlantic Trust Stein Roe, including Google shares. He says the buying on the part of the fund managers could be bullish if it's sustainable. As Google approaches Saturday's two-year anniversary of its huge IPO, investors have grown accustomed to the company doing the extraordinary. Shares of the company skyrocketed from their $85 starting point to $100 on their first day of trading on Aug. 19, 2004. They reached as high as $475 in early January. But tech investors don't dwell on the mountains that Google has already climbed. They want to see the company scale even bigger heights. Exactly what that will entail is difficult to say. It's important to remember that Google's shares have remained stuck even though it reported better-than-expected second-quarter results. Headline-grabbing deals with Viacom's ( VIA) MTV Networks and News Corp.'s ( GOOG) MySpace didn't do the trick, either. This interest from big funds isn't always a positive sign, and analyst Sasa Zorovich of Oppenheimer & Co. cautions against reading too much into these moves. "There are buyers, and there are sellers," says Zorovich, who rates Google shares a buy, "and God knows who is smarter."