Most advertising and media stocks are essentially in a cyclical business – ad growth ebbs and flows with economic growth and the overall pie grows or shrinks accordingly.
But web advertising is growing regardless of the overall advertising pie and this makes Google the ultimate secular growth story in the space (unless Facebook someday gets its ad sales really humming).
Google is held by 16 of Morningstar’s 26 “Ultimate Stockpickers”. Here’s Oakmark’s Bill Nygren on why he likes it:
“We think Google is one of the exceptions to the mean reversion in the near term, where there is a very strong tailwind of advertising shifting from traditional media to online, and Google being the leader in the online-advertising category, likely to remain the leader for years, and online has a very small percentage of advertising dollars today. You talk to almost any consumer product company and their marketing department, and they will tell you that five years from now, 10 years from now they expect to spend substantially more of their advertising budget on the Internet than they do today. We think Google is very well-positioned to have an above-average growth rate for a very long time.”
It’s one of those stocks that makes you wish the market would crumble so you could get it much cheaper. Because in the intermediate to long-term the trends are undeniable.