The Google IPO is designed to enable small retail investors to buy shares of Google Inc. on the same footing as big institutional investors, but the experience can leave a bad taste if the average investor doesn’t analyze the long-term consequences.
The market needs some good news, because the sleeping bull has too many burdens on its back. Economic figures are soft, oil prices are going over $43, and mounting interest rates are not helping the bull.
Yet, all major indexes ended the week higher, with the Dow industrials gaining 1.8 percent after five weeks of losses and the Nasdaq up 2.1 percent after four down weeks. Despite the gains, the market ended July sharply lower.
The Town Crier index rose 3.18 percent with issues such as Apple Computer rising 5.34 percent, Intel Corp. 7.54 percent, KLA-Tencor 6.37 percent and Yahoo 9.26 percent.
Last Friday, search engine Google Inc. began taking bids to sell as many as $3.3 billion shares in a Dutch auction. Potential investors would submit bids that include the price they are willing to pay and the number of shares they are willing to buy.
Google advised in a filing earlier this week that it expects to sell its shares between $108 and $135 through the online auction.
Google has a great product, but will each share be worth more than $100? Google is a profitable company; and if it continues at its present level, it will make $1 a share on 268 million shares.
If the bidding is high and the price becomes $135, the stock’s price-to-earnings ratio will be 135. That’s high when you consider the Dow stocks’ average P/E is around 20. It’s also worth keeping in mind that technology stocks listed on the Nasdaq during the late 1990s today trade 70 percent lower than their 2000 peak.
If you think Google is a buy, tell yourself, “High P/E means high risk.” Money is money, and a high P/E stock has to compete with other issues that are cheaper.
In technology there is always competition: Microsoft is working on a search engine, and Yahoo’s search capabilities are expanding. If Internet users switch their loyalty, and advertising slows, Google’s share price could take a big hit.
I am not buying Google shares, but if I did I would buy only 100 for curiosity’s sake.
With three months left until Election Day, the major stock indexes are showing year-to-date declines. That’s not a good sign for the incumbent party. The stock market has given President George W. Bush little encouragement in his re-election campaign.
Reading tables and charts, it is evident investors have shown little enthusiasm for either Bush or the Democratic nominee, John Kerry. If the market escalates in small amounts, Bush will take credit; but if the market vacillates, Kerry will be sure to pounce on it.
