At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
A gaggle of Google alternatives
Yesterday, you see, Evercore initiated coverage on a trio of Internet stocks, rating Google an "underweight" (read: sell), while suggesting Yahoo!
And crazy as it may sound, I'm inclined to agree -- at least in part.
Begin with the best ...
Consider: There's little doubt at this point that Google is the king of Internet search, but at a current market capitalization of $168 billion, a price-to-free-cash-flow ratio of 18.7, and long-term growth predicted to average just 16.4% per year, it's easy to see why Evercore would call this stock the least undervalued of the three named above.
... but don't forget the rest
Yahoo! is a trickier proposition. At first glance, it's hard to see why Evercore would even gift this longtime loser with an "equal weight" rating. Selling for $19.4 billion, with $625 million in annual free cash flow and an anemic 11% growth rate, Yahoo seems anything but a bargain at today's price.
And yet ... if Yahoo succeeds in cutting $500 million from its annual operating costs through its search alliance with Microsoft
Meanwhile, at AOL, we find a near mirror image of Yahoo! -- an apparent steal of a deal, with hidden risks aplenty. Ever since its inglorious divorce from Time Warner
And yet, with a market cap of just $2.6 billion, the stock sells for barely six times free cash flow. AOL also possesses a cash war chest of $320 million net-of-debt. Yesterday, AOL began deploying that cash in an effort to recharge its growth prospects -- purchasing fast-growing techie blog site TechCrunch and online video syndicator 5min in a whirlwind of micro-deal-making.
The more I look, the more I like
But why stop there? The more you look beyond Google in the tech space, it seems, the more values you find. Arch-Google-rival Microsoft, for example, carries a market cap less than 10 times as large as its massive annual free cash flows -- and it pays a dividend, which Google does not.
And speaking of dividends and Internet stocks, do you remember NetZero and Juno? No? Well, don' feel bad -- most people don't. And perhaps that's the reason that tiny United Online
Meanwhile, the more people forget about it, and the lower its stock price falls in consequence, the bigger United Online's dividend yield swells. At last report, each share of the stock was paying out a monster 7.3% dividend yield. To top it all off, in contrast to AOL, United Online is actually expected to grow 6% a year over the next five years.
Foolish final thought
Before I wind up today's column, I want to toss out one final thought for Fools fed up with Google, and looking for the next new thing: social networking. For months, my Foolish colleague Rick Munarriz has been musing about the potential for Twitter, Facebook, and other social networkers to replace Google as King of all Internets.
For the time being, we're still tapping toes as we await the IPOs. But for anyone interested in jumping ahead of the game, there is one social networker out there, primed for the buying: News Corp.
As for myself, I'm sticking with Google in hopes that the king will not die. But for those no longer enamored of it, it's worth remembering: There's a gaggle of alternatives to Google.
Fool contributor Rich Smith owns shares of Google. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 550 out of more than 170,000 members. The Motley Fool has a disclosure policy.
Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google, and Microsoft.
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