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One of the World's Most Expensive Stocks Could be Offering a Rare Buying Opportunity

Even in this recent bull market spurt to new all-time highs, the run-up in Google's (Nasdaq: GOOG) share price is dramatic. Since the beginning of the year, the stock has gained almost 13%. On March 6, GOOG hit an all-time high of $844, but has since pulled back to the low $800s. Despite recent gains, traders should still be able to make money using the recent pullback as a buying opportunity.

In my opinion, there are five key reasons Google stock should continue to rise in the months ahead:

Google Ads

At its core, Google is an advertising company. In 2012, its pay-per-click advertising services, Google AdWords and AdSense, accounted for $43.7 billion of the company's total $46 billion in annual revenue, or 95%. Google's ad segment has grown each year. In 2010, the company pulled in $28.2 billion from ad revenue. In 2011, Google made $36.5 billion from ads. If the trend continues, Google will likely bring in billions more in ad revenue in 2013 and beyond.

Android

Android is Google's operating system used on smartphones and tablet devices. It directly competes against Apple's (NASDAQ: AAPL) iPhone and iPad platform, as well as Microsoft's (NASDAQ: MSFT) Windows mobile operating system.

However, Android is the clear leader in the smartphone world, controlling 70% of global market share. Android is used by the world's largest smartphone companies, like Samsung, LG and HTC. Because the Android system is free, Google doesn't directly make money from it. However, any time anyone using an Android device pays to download an Android-based game or app, Google gets a 30% cut of the download fee. With over 1.3 million new people activating their Android phones each day, the growth possibilities for Android are phenomenal.

Google Fiber

This product may be the answer to slow Internet connections. Google Fiber is a broadband Internet connection that runs at a speed of 1 gigabit per second. That's about 100 times faster than the current average U.S. connection. This Internet service is already offered in Kansas City and should make its way to more U.S. cities soon. At a cost of $70 per month, or $120 per month for the Internet and cable TV option, Google should see the profits roll in as it expands Google Fiber throughout the United States and then worldwide.

YouTube

A subsidy of Google, YouTube was purchased in 2006 for $1.7 billion. Today, it has become the go-to source for watching videos online. Google recently announced that over 1 billion people visit the site every month. This viewership is equivalent to 10 Super Bowl audiences.

The Financial Times reports that YouTube is the second-most searched website, behind only Google. Although Google is not forthcoming about its profit from YouTube, Pivotal Research estimates YouTube generates about $1.3 billion annually in video ads sales, plus several hundred million more in search and banner ads. With continued audience growth expected, YouTube will likely become another future multi-billion-dollar ad-generating division for the company.

Google Glass

Still in its infancy, Google Glass is a head-mounted wearable computer that resembles a high-tech pair of reading glasses. The glasses have a small embedded camera, microphone and GPS. Users can record what they see by using voice commands to take pictures or record videos.

In the future, the glasses may be able to start coffee machines or even open garages doors. The first version of the glasses will likely be released by the end of this year. It's hard to know yet if the glasses will generate blockbuster sales, but the product should still help line Google's pocket.

From a technical perspective, Google stock looks appealing.

Google Stock Chart

Rising off a June 2011 low of $473.02, shares have gained over 71% to date. Forming a major uptrend line off this low, the stock hit a high of $670.25 in early 2012, but slipped to support near $556, marked by the major uptrend line, in June. Coming off this support, shares briefly stalled at $670 resistance in August. They then hit a high of $774.38 in late September.

Unable to sustain this peak, the stock slipped to a low of $636 in October. It didn't stay at this level long, though. Forming an accelerated uptrend line off the low, shares steadily increased, making their way past $774.38 resistance. In the process, a small "U-shaped" basing formation was bullishly broken.

The stocked peaked on March 6 at $844 and has since pulled back to near $810, presenting a potentially profitable entry point for traders.

According to the measuring principle for the base, calculated by adding the height of the pattern to the breakout level, the stock could potentially reach a new minimum price target of $878.51 ($774.38-$670.25 = $104.13; $104.13+$774.38 = $878.51). At current levels, this target represents 8%-plus returns. However, with no overhead resistance in sight, shares could easily go higher.

The bullish technical outlook is supported by strong fundamentals. For the upcoming first quarter of 2013, analysts project rising ad revenue and Android sales will help push overall revenue up a whopping 74% to $14.1 billion from $8.1 billion in the year-earlier quarter. For the full 2013 year, analysts expect growth across multiple streams will cause revenue to increase 41% to $60.2 billion compared with $42.7 billion last year.

The earnings outlook is equally optimistic. For the first quarter of 2013, analysts estimate earnings will increase nearly 6% to $10.68 from $10.08 in the prior-year quarter. For the full 2013 year, the 39 analysts following the company project innovations, such as Google Fiber, could cause earnings to rise 14% to $45.55 compared to $39.82 last year.

Risks to consider: Google has had failed initiatives such as the recently pulled Google reader service. For Google to remain a market leader, it will need to continue innovating in advertising. Mobile ad revenue is the wave of the future, but at present, the Google Ads system is not particularly well-suited for mobile applications. However, the company has an impressive track record of coming up with novel solutions to technological issues and will likely conquer the mobile advertising sphere as well.

Recommended Trade Setup:

-- Buy GOOG at the market price
-- Set stop-loss at $774.21, slightly below current support
-- Set initial price target at $878.51 for a potential 8% gain by the end of summer 2013