Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Selling Google, buying Baidu

chart_ws_stock_baiduinc.top.pngBy Paul R. La Monica, editor at large


NEW YORK (CNNMoney.com) -- Google is to be commended for taking a stand against censorship in China.

But investors are taking a stand of their own. They're selling Google and buying Baidu, also known as China's Google.

paul_lamonica_morning_buzz2.jpg

Shares of Baidu (BIDU), which already was the leader in online search in China before Google (GOOG, Fortune 500) began redirecting users of google.cn to its Hong Kong site last week, are up 4% in the past week and nearly 50% this year.

Google, by way of comparison, has missed out on this year's tech rally. It has fallen nearly 10% so far in 2010.

But is the run-up in Baidu overdone? And what about the sell-off in Google? Well, some think that both stocks are still a buy.

To start, the biggest mistake investors might be making is to think that Google has thrown in the towel on the world's most populous nation.

Morris Mark, president of Mark Asset Management, a New York-based hedge fund that owns shares of Google and Baidu, said that investors need to realize that Google still will be able to partake in the growth of online search in China.

"There is no question that people were looking at China as a major opportunity for Google and were disappointed," Mark said. "But this is important. Google has not left China. They've based the search servers in Hong Kong and China has not blocked the site."

For that reason, he thinks the recent dip in Google was an overreaction. He points to the fact that Google is still a market leader in the United States and most other areas around the globe. And despite that, the stock trades at only about 20 times earnings estimates for 2010.

As for Baidu, Mark conceded that the stock, valued at more than 60 times 2010 earnings estimates, is trading at a sizeable premium to Google. But he argues that Baidu is worth it considering its growth prospects. Analysts expect Baidu's profits to grow about 50% in 2010 and 2011.

Steven Weinstein, an analyst with Pacific Crest Securities who follows Google and Baidu, agreed that investors shouldn't be playing an either/or game with the two stocks.

He pointed out that analysts' current growth estimates for Baidu don't factor in any benefit it may get from Google scaling back in China. So he thinks the recent move up for Baidu's stock is not an overreaction.

But at the same time, the fact that Baidu is beating Google in the Chinese search game doesn't mean that it's time to sell Google.

"Yes, China is a large and rapidly growing market. But there are 5 billion other people in the world in markets where Google dominates," Weinstein said. "There are other growth opportunities that Google has which people are discounting."

- The opinions expressed in this commentary are solely those of Paul R. La Monica.  To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.65%3.67%
15 yr fixed2.78%2.78%
5/1 ARM2.99%2.96%
30 yr refi3.69%3.71%
15 yr refi2.81%2.81%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,681.98 -148.78 -0.83%
Nasdaq 4,751.02 -54.27 -1.13%
S&P 500 2,053.43 -22.38 -1.08%
Treasuries 1.83 -0.01 -0.54%
Data as of 2:15pm ET
Company Price Change % Change
Bank of America Corp... 14.51 -0.28 -1.89%
Freeport-McMoRan Inc... 13.90 1.24 9.79%
Apple Inc 93.33 -1.50 -1.58%
Ford Motor Co 13.60 -0.49 -3.48%
Microsoft Corp 49.99 0.09 0.18%
Data as of 2:00pm ET

Sections

Oil refining giant Phillips 66 reported a big drop in earnings that disappointed Wall Street. The stock is one of the largest holdings of Berkshire Hathaway. More

The Dow is down 300 points over the past two days, leaving the index on track for its worst week since early February. Blame fumbled earnings reports from the likes of Apple and Google as well as concerns about the Bank of Japan. More

WeWork co-founder Miguel McKelvey talks to CNNMoney's Laurie Segall about his design process for WeWork buildings. More

Visa says new software will allow consumers to check out with chip cards as fast as swiping a card with magnetic strip. More