Posted by: Dirk | October 18, 2007

Safe haven stock – too good to be true?

I recently read an article about Google being a safe haven stock (since then, it went up from around U.S.-$ 500 to over 600). RBC analyst Jordan Rohan thinks so. Derek Brown, an analyst with Cantor Fitzgerald, said: ‘Make no mistake. The overwhelming majority of Internet companies, and Google in particular, have plenty of liquidity. Few have meaningful debt. […] So it makes sense that it’s a relative safe haven.’ So what makes a safe haven stock? Does it grow (or not fall) when all other stocks fall? It seems to me that most commentators argue that firms with no debts and a pile of cash are safe havens. Is there any empirical work on this yet?

UPDATE 01/11/2007: Google has passed the US-$ 700 mark now. But what about inflation? The Fed just lowered the interest rate, which might lead to inflation. If inflation picks up, then Google’s cash will be diminishing in worth. The same if the US-$ falls some more.

UPDATE 24/02/2008: Safe haven stock Google? This seems like an urban myth by now. Compare yourself the performance of Google and the NASDAQ index over the last half year:

Google vs NASDAQ

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