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Thursday July 22, 2010
Buy Google (GOOG) and sell Baidu (BIDU)
by Jim Trippon, editor Global Profits Alert  Many pundits are taking pot shots at Google (GOOG), while recommending China search engine firm Baidu (BIDU).However, I am taking a contrarian view. In fact, tight now I believe that Google is dirt cheap compared to Baidu. Baidu cheerleaders boast that the company is expanding in the world's fastest growing Internet market. Meanwhile, Google took a big hit last week when the company issued its Q2 earnings report. t has been a rough year for Google. Shares have lost more than 25 percent of their value. That's worse than the NASDAQ and even worse than Microsoft's performance. But Baidu has performed like a champion by comparison. 
But not so fast! Baidu's chart suggests that the days of endless share price gains may have ended. Over the past quarter, prices found a peak above $80 and became range-bound at best. Technical indicators suggest an ongoing easing of Baidu's peak prices. Meawnhile, take a look at Google's recent plunge. Before its earnings announcement Google shares sported a relatively modest 22.39 P/E multiple. And what was the shocking news that caused Google to lose almost seven percent of its value? Profits increased! Google posted a profit of $1.84 billion, up from $1.49 billion a year ago. Revenue jumped to $6.82 billion from $5.52 billion. More than a billion dollars in new revenue weren't enough to support Google's modest valuation. A one percent increase in operating costs, and a miss of few cents on earnings per share, spooked the market. Meanwhile Google's new products are being snapped up around the world. The Android OS for cell phones is quickly catching up with the iPhone in global popularity and is supported by many more telecom companies. Google's other products are constantly being upgraded. The firm's increased operating expenses in the last quarter were related to the purchase of valuable advertising companies like AdMob. In my view, Google is still one of America's technology leaders and is still growing earnings aggressively. Forget about investing with your eye on the rearview mirror. Baidu's past performance is impressive. But now it is priced for huge success, or for huge disappointment if it misses expectations by even a fraction. Baidu carries frightening risk at today's valuation. But Google has been beaten down to a point where the chances of investor rewards with this tech leader are obviously greater and the risks are smaller. I'm ignoring the talking heads. I'm selling Baidu and buying Google. Learn more about this financial newsletter at Jim Trippon's Global Profits Alert. |
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