Rising Star Buy: Google

This article is part of ourRising Star Portfolio series.

Mighty companies with well-respected leaders are stumbling left and right these days. However, Google's (NAS: GOOG) still standing strong. That's why I've decided to add more shares of this tech giant to my Rising Star portfolio while the stock's still trading at today's reasonable levels.

The business
I originally purchased some Google shares for my Rising Star portfolio last April. The original thesis hasn't changed much; right now, I'm buying more on renewed faith that Google's a strong company even in weak economic times. Its latest quarterly results hammered it home.

Google's finally bursting beyond its traditional, PC-based Internet search after many years shackled to that one lucrative yet ultimately limited revenue channel. Google's Android mobile operating system is growing like crazy; Android is now the biggest smartphone operating system, with 190 million Android device activations worldwide. There's plenty of buzz circulating about its Ice Cream Sandwich Android update, too.

Google's taking advantage of current opportunities, which is particularly clear after Apple's (NAS: AAPL) lackluster iPhone upgrade launch (and subsequently shocking quarterly earnings miss).

Larry Page is proving his mettle in the CEO post at Google, even after plenty of other highly respected CEOs are leaving their posts or grappling with public relations disasters that have shaken their shareholders' confidence.

Why I'm buying
Even after Google's impressive quarterly results, the stock's still reasonably priced. It trades at just 13 times forward earnings, and it sports a PEG ratio of just 0.83. The tech world's usually known for overpriced stocks; for example, look at Amazon.com (NAS: AMZN) , which trades at 71 times forward earnings and waves a red-flag PEG ratio of a nosebleed 4.42. Jeff Bezos is known for bright ideas, but I'm not sure anything he could have up his sleeve could possibly justify Amazon's current pricing.

Granted, Apple currently trades at just 10 times forward earnings and a PEG ratio of just 0.53, but recent developments such as the departure and tragic passing of visionary Apple founder and CEO Steve Jobs leave many questions about the company's future.

In other words, when it comes to tech heavyweights, investing in Google makes me most comfortable at the moment. (Google's reputation as a very green and socially responsible company is a major reason it made the grade for my Rising Star portfolio, too.)

And now the risks
Every company faces risks, and Google's not immune. It butts up against regulatory scrutiny on a fairly regular basis, for example. One of the downsides of building a successful and powerful company can be the antitrust concerns that start cropping up.

I wasn't so enamored of Google's planned $12.5 billion offer to buy Motorola Mobility (NYS: MMI) ; although I could see the strategy behind it, it seemed odd on several levels. Motorola's struggles to rekindle its past glory and the possibility of stepping on the toes of major Android partners like Samsung and HTC struck me as a bit risky. (Furthermore, speaking of regulatory scrutiny, the Department of Justice is looking into Google's proposal to buy the handset maker.)

Recent rumors that Google might be interested in some kind of deal with Yahoo! (NAS: YHOO) turn me off; Wall Street types tend to adore splashy, high-profile deals, but I can only hope Google wouldn't squander cash on any kind of deal with an old-school Internet rival that has failed to adequately evolve. (And once again, speaking of regulatory scrutiny ... you know the drill.)

Google has slight corporate governance risk, too. It's set up with a dual-class stock structure, giving management a majority of the voting power. Personally, I have faith that Google's management really does believe Google's business can be good for the world, for shareholders, and themselves, but on the whole, I'm no fan of dual-class ownership structures at public companies. (Look at News Corp. (NAS: NWS) if you're curious to see an example of why this is generally poor corporate governance policy.)

Any company can rapidly lose its good reputation; Netflix's (NAS: NFLX) recent fall from grace shows just how rapidly a company can lose its stellar reputation and alienate its users. Privacy issues are an ongoing risk bubbling beneath the surface of Google's ubiquitous and useful products.

Foolish bottom line
Regardless, the potential blockbuster long-term rewards of buying more Google shares outweigh the risks. Google is holding its own in a challenging marketplace, and one of its missions is to make the world a better place through its corporate policies. I believe this is a strong company to purchase (again) for my Rising Star portfolio.

At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned in her personal portfolio. The Motley Fool owns shares of Apple, Google, and Yahoo!. Motley Fool newsletter services have recommended buying shares of Amazon.com, Netflix, Google, Yahoo!, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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