Why Google Is a Great Long-Term Stock

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This article is part of ourRising Star Portfolios series.

If you haven't heard yet, just Google it: Tech giant Google (NAS: GOOG) reported a blowout third quarter a few days ago. My Rising Stars real-money portfolio bought the stock in July, and we're currently down about 3%.

Fellow Fool (and unfortunate Dolphins fan) Rick Munarriz gave us his take on the earnings results. After digging deeper and listening to the conference call, I wanted to take a step back and cast a glance over the long-term landscape, which, to me, looks like a land of milk and honey.

Our business is advertising, and business is good
Amid all the fabulous and free products Google offers, we mustn't forget that they're all designed to fuel online advertising, which comprises virtually all of the company's revenue. And revenue growth was extremely healthy, growing 33% year over year to $9.7 billion. The $35.8 billion the business has raked in over the past 12 months helps fund all the great stuff like Google+, Android, Chrome, Google Maps, Google Docs, and so on.

These free products can redefine and even disrupt entire industries, and keep more and more people online, for longer periods of time, where they naturally click on more and more ads, which in turn fuels more great free apps. It's one big virtuous circle.

Theme show
Thus, great products and continuing innovation are two big keys to the Google's future. The earnings conference call gave me confidence that management is headed in the right direction. Consider these themes:

In the past three months alone, the company has started shutting down 20 different projects. This is awesome, because the more things these geniuses try, the more likely we are to get truly blockbuster applications that drive advertising revenue. We're familiar with some of the scrapped projects, like Aardvark and Google Buzz. Others we may never know about. But the point is that trying and failing can drive great innovation, especially when the effort and costs are relatively low.

Management is continuing its strategy of getting products out and in front of users before they're complete. Remember how long Gmail was in beta? Today's promising applications include the travel search engine Google Flights, Google Wallet, and Google+. Google Flights, in particular, is nowhere close to providing serious competition to Expedia, Ctrip.com (NAS: CTRP) , or priceline.com (NAS: PCLN) . It does, however, have several innovative features, and it may one day become the major player in travel search.

Google Wallet is an Android app that allows you to pay for items with your phone using near-field communication, or NFC. It could eventually replace all the cards in your wallet. Currently available on Sprint Nextel's (NYS: S) Nexus S 4G phone, it can be tied to a Citi MasterCard (NAS: MA) or Google Prepaid Card. Expect Visa (NYS: V) and others to come on board eventually -- as well as more phones and hopefully more operating systems, such as iOS.

Management appears to view Google+ as a sort of glue that holds its app universe together. I'm not at all bullish that Google+ will ever become a Facebook-type success (check out my reasoning for yourself), but I do think it will find its own niche and serve the company well.

Management continues to impress me with its refusal to play the short-term Wall Street game. Instead, its focus is on building the most valuable business possible by integrating search, mobile, and all those great apps into a seamless user experience. Here's what co-founder Larry Page said during the call:

"Generally, I have found that high usage products will make a lot of money over time for well managed technology companies, and that's why it's so important to run these businesses for the long term. ... We are still at the very early stages of what technology can deliver. These tools we use online will look very different in five years' time."

Coming soon ...
There are reports that Google is close to launching its own music store to compete with Apple's (NAS: AAPL) iTunes. Will it be able to succeed alongside iTunes, as Android has with the iPhone, or will it be scrapped within a couple of years? I don't know for sure, but I am happy to sit back and watch the battle play out.

I currently have a full position in my Rising Stars portfolio, or I would be looking to add more here. If you need some large-cap tech exposure, I recommend that you pick up some shares at these prices. Whatever you decide, you'll benefit greatly from adding Google to your free, personalized watchlist:

This article is part of ourRising Star Portfoliosseries, in which we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks.See all of our Rising Star analysts(and their portfolios).

At the time this article was published Fool analyst Rex Moore has the world's second-most fascinatingTwitter feed. He owns no companies mentioned in this article. The Motley Fool owns shares of MasterCard, Apple, Ctrip.com International, and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, Visa, Ctrip.com International, priceline.com, and Apple, creating a write covered strangle position in American Express, and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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