I've been saying for some time now that Wall Street and the mainstream media need to take a decidedly different view of Google Inc. (Nasdaq: GOOGL).
In fact, back on Jan. 20, I made that exact point when I appeared as a guest on the popular show "Varney & Co." on FOX Business.
Specifically, I said that the senior leaders at Google were looking to build the "conglomerate of the future" – separating, for example, search, life extension, and self-driving cars all into separate "silos" – and that they saw famed investor Warren Buffett as their "guru" for this model.
Buffett, of course, is the mastermind behind Berkshire Hathaway Inc. (NYSE: BRK.A), a sprawling, decentralized concern with holdings in insurance, railways, food, and much more. Berkshire has returned 2,767% to its shareholders in the last 25 years.
Not a bad model to follow…
Turns out, my analysis of Google's intentions and its role model were more accurate than even I realized at the time.
With the market tumbling this week, more than ever, we need to be on the hunt for quality stocks – ones that can beat this sideways market. And now that Google has announced a new corporate structure, complete with a new name, it's poised to crush the market over at least the next three years.
Today I'll show you how to play it…
Taking Profits Will Be as Easy as A B C
Back when I discussed Google with host Stuart Varney in January, I said the stock was a great play for investors who could afford to take the long view.
I said it would take about a year for what I saw going on behind the scenes to begin to pay off for shareholders. This is one time, I'm happy to be wrong.
Since then, the stock is up 30.8%, beating the S&P 500 Index by more than 2,000% over the period.
To me, just the stock's performance (most of it over just the last month) means that Google meets the mandate of Rule No. 2 of my five-part system for building tech wealth. That rules says to "separate the signal from the noise."
Making money in tech stocks means you have to avoid not only hype from the company, but also the noise you hear from Wall Street. Remember, until very recently, the Street has been down on Google, saying the firm invests too heavily in futuristic tech.
Shows you how much Wall Street knows…
Instead of putting Google's work on longevity, self-driving cars, and other futuristic tech in the shadows, the new corporate structure unveiled last week practically puts it on display.
And so far, it's been nothing but good for investors.
To unlock the value hidden inside the leader in web search and related technology, Google's leaders have created a new parent company called Alphabet Inc.
The idea is to separate out the company's massive web search and advertising business from its investments in what are often referred to as "moon shots."
Google said Alphabet will act as a holding company for its growing list of non-web businesses. These subsidiaries include everything from Boston Dynamics (robots) and Calico (human longevity) to X (cutting-edge stuff, like drone delivery) and Nest (smart home).
Just to give you a flavor of what we're talking about here, consider that Google recently struck a deal with the National Aeronautics and Space Administration (NASA) under which it will lease a Silicon Valley tract for the next 60 years at a cost of $1 billion. The company said it will use the space for R&D in aviation, space exploration, robotics, and "other emerging technologies."
Co-founders Larry Page and Sergey Brin will run Alphabet, which makes perfect sense, because these guys love the futuristic stuff.
Under the new structure, each Alphabet subsidiary will have its own CEO reporting to Page. That's pretty much how Buffett does things at Berkshire Hathaway, a company Page now openly says is his model for running a modern conglomerate.
Page and Brin will be joined in running Alphabet by new Chief Financial Officer Ruth Porat. You may recall from our July 31 conversation that Porat has convinced Wall Street that Google can be what I've called "an ETF on the future" but still deliver strong cash flow and profits right now, today.
After the company recently beat on second-quarter earnings, Porat emerged as a star who could keep the company focused on the bottom line. Her performance in a conference call with analysts was one of the reasons your Google stock jumped a stunning 16% on July 17.
Meet Sundar Pichai
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.