Stock Madness Final 4: Google

Google vs. Canadian National Railway

I've been workin' on the railroad,
All the live long day.
I've been workin' on the railroad,
Just to pass the time away.

This Fool did indeed work on the railroad not long ago, and so I find it intriguing to face one of the major North American railways in a head-to-head battle today.

My Google (Nasdaq: GOOG  ) boys and girls disposed of mighty Berkshire Hathaway (NYSE: BRK-B  ) in the Elite Eight round, and now faces Canadian National Railway (NYSE: CNI  ) in the Final Four. It's an intriguing match, but there's little doubt to my mind who brings the stronger full-court press to this game.

The basics
I'll concede the fact that Canadian National appears to be the finest railroad available right now, with profit margins that blow peers like Union Pacific (NYSE: UNP  ) or my old haunt CSX (NYSE: CSX  ) out of the water. But comparing apples to apples isn't really appropriate here.

Holding the railroad's Granny Smith up to the Googlish mangosteen reveals why the Big G is the wiser choice for most investors:

Google

CN

3-year Revenue Growth

73%

6%

3-year Levered Free Cash Flow Growth

108%

25%

TTM Free Cash Flow (millions)

$3,373

$1,043

Data taken from Capital IQ, a division of Standard & Poor's.

Here's the craziest thing: You could argue that Google is cheaper than CN right now. With a forward P/E ratio of just 19 and a proven track record of dependable growth, the PEG ratio is a minuscule 0.79. Canadian National trades for 12 times next year's earnings, but is rightly expected to grow much slower -- if at all. Hence, the PEG ratio stands at 1.1, which is respectable but no match for the opponent in today's match-up.

Head to head
So let's see here: Google dominates its sector to the point that Microsoft (Nasdaq: MSFT  ) is trying to buy Yahoo! (Nasdaq: YHOO  ) in a misguided and ultimately pointless attempt to keep up with Google. Online marketing is highly targeted, which makes it an attractive choice for American businesses faced with uncertain returns on their marketing dollar.

If by some miracle or disaster the U.S. market dries up entirely, there are still acres of unexploited growth opportunity available abroad, and the Mountain View giant is expanding into plenty of offline activities, too. All of this, plus cash-generating powers far beyond Google's youthful years, is available at a very reasonable price, if not an outright steal.

Weigh that against stagnant growth, huge exposure to rising fuel prices, and a much smaller cash cow, with a less generous price tag. Unless you were hoping to live off that 1.9% dividend yield, it's easy to see that Google is the stronger team today. Now it's up to you to mosey on over to CAPS and cast your vote, to settle the score once and for all.

You know Google belongs in the championship game. Canadian National's Cinderella run is over. Sorry, Todd.

Further Foolishness:

Who's going to take home the trophy? See the rest of this year's bracket.


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