Enough on Facebook! Buy Google or Apple

@lamonicabuzzMay 18, 2012: 4:16 PM ET

NEW YORK (CNNMoney) -- Facebook is finally trading. And even though the stock didn't explode out of the gate, the company is still worth more than $100 billion. It shouldn't be.

If you clicked on this story after reading the headline, I am hopefully preaching to the choir and you agree with me. As fantastic as the company is, Facebook's stock is simply way too expensive for average investors.

Let's go crazy and let's get nuts and assume that Facebook (FB) can grow its earnings by 50% both this year and next. If it did that, it would finish 2013 with net income of $2.25 billion. (Facebook had a profit of $1 billion last year.)

So with a market value (including as-of-yet unexercised options) of about $105 billion based on its closing price Friday, Facebook is valued at more than 45 times my likely pie-in-the sky (more on that in a second) 2013 earnings estimate.

Why buy Facebook at that level when Apple (AAPL, Fortune 500) trades for less than 10 times fiscal 2013 earnings estimates .. and has a lot more cash than Facebook? Google (GOOG, Fortune 500) is valued at just 12 times 2013 earning estimates.

"Even if things go really really well for Facebook, it's tough to see how the valuation could go that much higher," said Espen Robak, president of Pluris Valuation Advisors in New York.

"This isn't an early stage company anymore either. If you want exposure to technology but you want more safety, you are likely better off with Google or Apple," he added.

What's more, Facebook's growth, while impressive, is actually not expected to be as robust as some other social media companies that have recently gone public.

According to preliminary estimates compiled by FactSet Research, the few analysts who already follow the company (analysts at the firm's underwriters have to wait before launching coverage) are predicting annual earnings growth for Facebook of 38% a year, on average (not my 50% assumption) for the next few years.

By way of comparison, profits for gaming company and Facebook ally Zynga (ZNGA) are expected to rise at a 40% clip while LinkedIn's (LNKD) earnings are forecast to rise 62% on average for the next few years.

With that in mind, some think that Facebook, because of its dependence on online advertising, needs to trade at a P/E ratio much closer to Google than, say, the sun.

"In abstract terms, nobody else has the potential that Facebook has. However, the frenzy is not sustainable," said Debarshi Nandy, professor at Brandeis International Business School in Waltham, Mass.

"The fundamentals will determine where Facebook is going to be five or ten years from now. And it might make sense for Facebook to be trading at a valuation much closer to Google's," he added.

Technology is a highly volatile and economically cyclical sector. For anyone who forgot that, look at what happened to tech stocks in 2000 and 2008.

And with China's economy slowing, Europe once again at the precipice of a debt disaster and the U.S. job market losing steam, this is not the ideal time to be betting on the riskiest of tech stocks.

Being a leader today is not a guarantee that you will stay on top. That's why it pays to stick with stable technology leaders, companies that have a lot of cash to spend on research and development but that can also weather financial storms.

"In these uncertain times, you really want blue chips that pay dividends," said George Feiger, CEO of Contango Capital Advisors in San Francisco. He said his firm owns Microsoft (MSFT, Fortune 500) and IBM (IBM, Fortune 500). Heck, Microsoft even owns a small stake in Facebook.

"Regardless of Facebook's merits, this is a textbook case of great marketing. The IPO price was inflated," Feiger added. "People are confusing the social significance of Facebook with actual value."

No Best of StockTwits or reader comment of the week this week. Sorry. Too many great FB tweets out there. Tough to pick just one. (Translation: I'm too busy because of Facebook coverage!) So if you want to check in all the good, clean fun, here's the FB stream on StockTwits.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks. To top of page

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