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The technology sector has been on fire this year, easily outperforming the S&P 500. Although companies like Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) receive a heavy amount of attention, one major tech titan has quietly broken out to new all-time highs.
Google (NASDAQ:GOOG), the world’s leading search engine, has been trying to find a new all-time high since hitting a peak of $747 a share nearly five years ago. Within a year of topping out at that price, shares hit as low as $260 in the midst of the credit crisis. Since then, shares have slowly climbed their way back to new all-time highs, but at least one analyst believes there is more upside.
On Monday, Google hit a new all-time high of $750 a share, giving the company a larger market cap than IBM (NYSE:IBM). The move was highlighted by Citigroup analyst Mark Mahaney raising his price target on to $850 from $740. He notes that key obstacles such as cutting costs at Motorola, mobile monetization and competition are “abating.” He expects ad spending to increase around 20 percent in the third quarter, and new efforts to monetize Google Maps will help boost revenue. He also questions rather or not any other company will be able to seriously compete with Google.
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Mahaney explains, “At the margin, we remain skeptical that Facebook and Apple’s initiatives dramatically raise the competitive risk to Google’s core and future businesses,” in his analyst note. “The amount of resources and skill required to really succeed in Search are very significant, as Yahoo (NASDAQ:YHOO) and Bing’s (NASDAQ:MSFT) limited results to date demonstrate. But this will obviously be a key area to monitor.”
As the chart above shows, Google is firing on all cylinders. Shares of the company have surged more than 30 percent in the past three months. Strong resistance between $625 and $650 kept shares in check over the past two years, but this barrier is now long gone. On Tuesday, shares jumped 1.8 percent to reach another all-time high of $764 and ultimately closed at $749. As long time Wall St. Cheat Sheet readers know, ‘Technicals on the Stock chart are Strong’ is a valuable component in our CHEAT SHEET investing framework. With Google making a clear breakout, prior resistance is now likely to act as strong support.
Mahaney’s $850 price target is based on a price-to-earnings multiple of 15, which is not a stretch by any means and very similar to Apple’s modest multiple. He told CNBC, “I don’t think 15 is at all an aggressive for a name that can grow 15 to 20 percent, and it’s also giving you a great option play.” Google’s YouTube business alone is around $3 billion a year. “That could actually surpass both Yahoo and Facebook in total display revenue within the next three years. That’s part of the value in Google that we think the market isn’t seeing.”
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