With all the hype surrounding Facebook, you may have missed one of the most fascinating -- and potentially lucrative -- developments in Internet investing in years.

Google (GOOG), the grandmaster of Internet search and advertising, has fallen so far that it's now considered a value stock by many investing pros.

Google, which still regularly produces 25% revenue growth despite its size, is now a value stock? And, at more than $600 a share, it's underpriced and perhaps even a bargain?

Absolutely, and I'll walk you through the numbers that prove it in a moment, then explain why Google looks so tempting at today's prices. But let's stay with the big picture for a second.

These two events -- Facebook's initial public offering and Google's stock weakness -- aren't unrelated. A big fear circulating about Google right now is that Facebook will drain away revenue by skillfully exploiting all the intimate details it knows about its users to beat Google in the online ad game.

This is just one of several myths holding back the stock -- all of which I'll debunk in this column.

image: Michael Brush

Michael Brush

Cheap at $600?

Google's slide into value territory is also a clear sign of how skittish investors remain -- which makes them more prone to believing the myths about Google.

"The market today is valuing predictability over growth," says Thornburg Value Fund (TVAFX) co-manager Connor Browne, and in the process it's handing you a bargain in Google. Some simple numbers show this.

The search giant currently trades at 13.8 times 2012 earnings, according to Thomson One Analytics. Google is actually about 20% cheaper than that if you strip out its $135.50 a share in cash, points out Michael Scanlon, a tech analyst with the John Hancock Balanced Fund (SVBAX). Taking out cash puts this forward price-to-earnings ratio -- a common measure of value -- at 10.7. At the same time, analysts project medium-term earnings growth of almost 18%.

In contrast, large consumer staples stocks like Kimberly-Clark (KMB) on average trade for around 15.5 times earnings, even though their projected earnings growth is much lower -- at around 10%, says Browne.

This looks like a huge disconnect, created by skittish investors crowding into stocks that appear to provide some certainly. "We think Google will grow much faster than the demand for toilet paper," says Browne. "Yet it is priced at a discount to the average consumer-staples company. We think it is an incredible opportunity."

He's not the only one. "We think Google is worth $800," says Barton Hooper, an analyst with Weitz Value Fund (WVALX), which counts Google as its fourth-largest holding.

Investing great Peter Lynch used to favor companies that traded for a price-earnings-to-growth ratio below 1, or 1.5 in the case of rapid-growth companies like Google. By this yardstick, Google looks really cheap; it trades for a PEG ratio of 0.59 after you strip out cash from the equation.

Of course, shares would not be so cheap if there weren't some fears surrounding Google's outlook that at least sound legitimate. Here's what they are, and why they are wrong.

Myth No. 1: Facebook will eat Google's lunch

With all the buzz around the upcoming Facebook IPO, the myth that Facebook is a huge threat to Google is gaining traction. After all, it's no secret how much time people spend on Facebook, and how much the website knows about its users. This seems like an advertiser's nirvana.

In contrast, Google's social website, Google+, can't match Facebook. And its search feature can't be found on Facebook. So Facebook will naturally take online ad dollars from Google.

The biggest problem with this worry is that Facebook has been around for years, yet Google has continued to grow by leaps and bounds. If Facebook was going to be such a problem, we would have seen it in the Google numbers by now, believes Browne, at the Thornburg Value Fund. In contrast, Google revenue growth continues to be strong, and Google's share of online ad revenue grew to 48% last year, from 31.5% five years ago, he says.

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This makes sense, because Google's model of serving up ads next to searches probably helps advertisers more than Facebook's approach of linking ads to user interests, believes Scanlon. "Facebook will do really well. But there is greater utility for advertisers in Google," he says. This is because more people are in "buy mode" when they are searching than when they are chatting on Facebook.

"I think they will co-exist. It doesn't have to be a zero-sum game," agrees Ryan Jacob of the Jacob Internet Fund (JAMFX), the best-performing technology fund over the past 10 years, according to Morningstar. "They can both do well."

Myth No. 2: The amount Google can get advertisers to pay is in decline

Google revenue grew by an impressive 24% in the most recent quarter, and the number of "paid clicks," or clicks on search-related ads served up by Google, grew by an impressive 39%. This sounds great. But the amount of revenue per click fell 12%. (Counterintuitively, this metric is called "cost per click" in the business, because it is described from the advertiser's point of view.)

That 12% cost per click decline sounds terrible, and it has investors worried. But it can be explained by two things: the fact that online advertising is shifting over to mobile, and that the use of ads on mobile phones is still in the early stages, comparable with where Internet advertising was about 10 years ago, maintains Scanlon, of the John Hancock Balanced Fund.

"People are looking at their mobile advertisements as an experiment right now," agrees Jacob. Over time, as companies become more comfortable with advertising on mobile devices, they will bid up the prices on these ads, predict both analysts, and this cost-per-click decline will go away.

Myth No. 3: Google needs a tablet win to win in mobile

Right now, of course, Apple (AAPL) dominates the tablet-computer space with its iPad. This will force Google to share too much search-related money with Apple, in exchange for being the preferred search on iPads, as more consumers access the Internet with these devices.

This fear is overblown, for a number of reasons, believes Scanlon. First, desktop search isn't going away. In fact, it will continue to grow nicely, given how much more advertising will shift to the Internet. Right now, the portion of overall ad dollars spent online is far below the amount of time people spend online compared with their use of other media.

Next, Google is rolling out innovations in mobile device advertising, like "click-to-call" that should boost its take in mobile-related revenue. Finally, Google CEO Larry Page, for one, doesn't think that his company's Android operating system will be closed out of the tablet market, since it runs many models that compete with the iPad. "We definitely believe that there's going to be a lot of success at the lower end of the market as well, with lower-priced products that will be very significant," he said on the company's most recent conference call.

Myth No. 4: Google has lost its focus

From self-driving cars and computerized glasses to green energy research, Google regularly reaches way beyond its core specialty of search. It's all part of the company's "healthy disregard for the impossible" ethos, something CEO Page says he learned while on a summer leadership course during his college days.

But it also bugs a lot of investors. "My concern is all that cash flow they throw off gets wasted on unrelated investments and pet projects to the detriment of shareholders," says Todd Lowenstein, portfolio manager of the HighMark Value Momentum Fund (HMVMX), explaining why he does not own the stock. The complaint is legitimate, because all these projects distract management and drive up costs.

Here, though, Google is reforming. "Last April, I began by reorganizing the management team around our core products to improve responsibility and accountability across Google," writes Page in a 2012 letter to shareholders published earlier this year. "I also kicked off a big cleanup. So we have closed or combined over 30 products."

Meanwhile, don't entirely write off the value of the remaining projects. They can yield benefits for shareholders. One failed project led to the technology behind AdSense, which powers Google's highly profitable display-ad business, says Page.

And many investors questioned Google's purchase of YouTube years ago. Now, it has more than 800 million users a month who upload an hour of video every second. That, plus the rollout of "official YouTube channels," being developed by popular artists like Jay-Z and Lady Gaga, has advertisers spending lots of money at the site.

Myth No. 5: Google's purchase of Motorola Mobility was a bad move

Google recently announced plans to purchase smartphone maker Motorola Mobility (MMI). It did this mainly to get access to the company's collection of patents, since this may help protect Google against patent infringement lawsuits.

Investors have two concerns here, both probably unfounded. First, hardware companies have much lower profit margins than software companies. So the combination theoretically drags down Google profitability. "If you just lumped it in there, it would look ugly," says Jacob. But Google will present separate financials. This should help investors focus on the rapid growth and high profits in the company's search and ad business, says Jacob.

Next, the move has some investors worried that Google wants to move directly into the smartphone business. This could alienate other phone-makers who use Google's Android operating system, and it could distract Google from its core specialties of software, search and advertising.

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Scanlon doesn't believe Google will make this mistake. He thinks that it will probably keep the patents but unload the Motorola Mobility hardware business.

Assuming Google "does no evil" toward shareholders here, the 10% stock decline in the company's stock from recent highs makes it look pretty attractive. Especially when you consider that at around $600, the stock still trades where it did in early 2011, even though sales have grown by more than 25% since then.

Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.

At the time of publication, Brush did not or control shares of any company or fund mentioned in this column.

Stocks mentioned in this article: Google (GOOG) and Kimberly-Clark (KMB).