1 Stock to Buy In May: Google

In this series, we're presenting six ideas for stocks to buy in May -- stocks our writers believe can serve as the foundation for a long-term-focused portfolio.

You know that age-old adage: "Sell in May and go away."

In theory, that makes sense. Wall Street runs on low adrenaline in the summer as many trading professionals and market watchers run off on lavish vacations. There's even some evidence that the market really does perform worse in the six months starting on May 1 than the rest of the year.

So it may be tempting to take a break from investing for a while. But then you're ignoring three undeniable facts:

  • Owning stocks for the long term is a winning strategy that crushes the winter-season market timers.

  • Selling in May and reinvesting in October will cost you. Capital gains taxes soar on short-term trading profits. Then there are those pesky commissions and other trading fees. These costs add up quickly when you liquidate and rebuild an entire portfolio.

  • Can you think of a better way for individual traders to beat the market than by investing while the pros are sunbathing in Barbados? We can react to real news while Wall Street can't.

Put these facts together and you arrive at the opposite conclusion: You should buy stocks you think are long-term winners in the summer and hold on to them through the market ups and downs. That's your best bet at beating the market.

Today, I'll show you why Google (NAS: GOOG) just might be the perfect stock to buy in May. This is a stock for the ages.

The business
Big G probably needs no introduction. After all, the company name has entered the English dictionary as a synonym for searching the Web. Google has branched out from there to build Android (the world's largest smartphone platform), YouTube (the leading online video site), and many other ventures. Most of these sprawling operations boil down to one money-making strategy: online advertising.

Google's reach in that field is so wide that the ad views from the Apple (NAS: AAPL) iPhone contribute more to Google's bottom line than Android does. Click by click, Internet users of every stripe contribute to Google's bulging coffers. Placing ads on Google's AdSense advertising network will soon be more important than producing TV spots. Internet ads like the AdSense model can target specific demographics far better than traditional marketing models, so the return on your marketing dollar is higher.

This is the future. Get used to it. And Google is the top dog in the digital ad market.

Why it's an own-forever stock
It seems like Google just can't impress the Street. Look up "undervalued" in the dictionary and you'll see the Google logo next to a graph like this one:

GOOG Earnings Per Share TTM Chart
GOOG Earnings Per Share TTM Chart

GOOG Earnings Per Share TTM data by YCharts

Over the last five years, Google has grown earnings by 25% a year and operating cash flows by 31%. The only thing that isn't growing like gangbusters is the share price.

And the beat goes on. Google has actually underperformed the Dow Jones Industrial Average in 2012. Never mind the fact that Big G probably belongs in any serious market-tracking index itself. A basket of stodgy blue chips seem to impress the average investor more than a market-leading Internet giant whose best years are yet to come.

That's just wrong. Other than the insanity of the 2008 market collapse, I don't think there's ever been a better time to buy Google shares. Buy in May and stay, stay, stay.

Skeptics will tell you that Google is just one successful start-up away from becoming yesterday's news.

It's true that there will always be a better mousetrap. Apple still might kill Android and switch the iPhone to a different set of online tools, taking away the mobile opportunity. Some say that Twitter or Facebook could make Google-style searches obsolete by answering your questions through the wisdom of crowds. And somewhere out there, a couple of college students might sit in a garage, working on the best search and advertising engine the world has ever seen -- much like Google's own roots.

These are real concerns, but they don't keep me up at night as a Google shareholder.

Apple would only leave the Google fold if it could find a better alternative. Microsoft (NAS: MSFT) and its Bing platform provide the only real competition for most of Google's tools today, and then Apple would simply switch from supporting one bitter rival to another. Cupertino does have its own ad-placement tools, but they don't apply to common smartphone and tablet tasks like searching the Web or getting driving directions. Google's ecosystem does all of this and more.

Real-time information requests might be the future, but there are some problems with that idea. Would you trust a random stranger's advice over a digitally curated search result? How can you tell a truly trustworthy Twitter account from the impostors, the wannabes, and the hidden agendas? And if you really only trust your own circle of friends, is that a big enough network to field all your questions?

In reality, I think plain old Web searches will always have a front-and-center place in the quest to find information. The details will change over time, but I expect Google to stay on the cutting edge of search trends -- when it isn't simply dictating them to others.

And you know what happens to hot start-ups? Google typically buys them and makes the new tools a part of the big machine. YouTube and Android came to Mountain View this way. The company has enough cash and business acumen to keep doing it, and is not afraid to overpay just to stop a bidding war from developing.

Perhaps the biggest risk to Google right now is the dominance of Baidu (NAS: BIDU) in the booming Chinese search market. Google has repeatedly taken a stand against Chinese censorship policies and seems willing to trade the world's largest economy for some political integrity. I say that's good for Google -- without a trustworthy brand, the company would be nothing. So enjoy China, Baidu. It's a big world outside the Middle Kingdom, too.

The Foolish takeaway
In Google, you get astounding growth and sensational innovation in a thriving sector, all for the price of a has-been in a mature and dying industry. The business continues to thrive and the valuation will snap back to match that reality someday. Investing at today's low prices will prepare you for years and maybe decades of wealth-building growth. That's one great way to lock down a comfortable retirement.

At the time thisarticle was published Fool contributorAnders Bylundowns shares in Google but holds no other position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Microsoft, Google, Apple, and Baidu.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Apple, Google, and Baidu.Motley Fool newsletter serviceshave recommended creating separate bull call spread positions in Microsoft and Apple. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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