Surprise winner of Facebook mania: Google
The search giant, up 7% since February, is benefiting from a halo effect, one expert says.
By Jonnelle Marte
While Facebook (FB) nabbed the lion’s share of media attention heading into its record-setting IPO on Friday, an older Internet giant’s stock was quietly rising.
Google (GOOG) shares have jumped more than 7% since Facebook filed for its initial public offering on Feb. 2, while the Standard & Poor’s 500-stock index is down about 1%. How to explain this market-beating performance? Some analysts say Google is likely benefiting from the hype surrounding Facebook -- and the inability for most regular investors to get in on the IPO at a decent price. It’s also seen as an attractive option for tech investors who can’t stomach the risks of investing in newly public companies, says Devin Pope, a wealth adviser for Albion Financial Group in Salt Lake City. "Google is a way to get exposure to social media without the risks and some of the potential unknowns from a company like Facebook," he says.
Indeed, despite all the pent-up demand for shares of Facebook, advisers say there are plenty of reasons to not buy in. First, most IPOs lose money, studies show, with even the hottest stock offerings popping soon after their first day of trading. Young companies also haven’t shown they can earn stable revenue, making it difficult for investors to measure their true worth, says Pope. They may also make blunders when reporting their financial results, he says, as happened with Groupon shortly after it went public.
Google, on the other hand, has been reporting earnings for years and has demonstrated profitability, analysts say. It also maintains a strong hold on the online advertising business, unaffected by Facebook’s gains in that area, says Rick Summer, a senior equity analyst for Morningstar. Google successfully expanded its search capacity -- and those ads -- through its other services like Google maps, Gmail and Google places -- a good sign for investors who want to see growth, says Summer.
And yet Summer says Google remains decently priced -- even with the recent run-up -- making it even more attractive to value-conscious investors. Morningstar puts the fair valuation of Google at $780 a share, 20% more than the stock’s current price. Facebook, on the other hand, it has a fair value of $32 a share, making the $38 IPO price expensive. "If you’re going to make an investment in the sector we think it’s a no brainer that you should be allocating money toward Google," says Summer.
Investors are "friending" other tech stocks, too. LinkedIn (LNKD), the professional networking site, is up 45% since February, while Apple has gained 16%. “There’s a halo effect and I think it goes beyond Google,” says Milo Benningfield, a financial adviser based in San Francisco. "Facebook is the rising tide that is raising all the boats."
More from SmartMoney.com
Wow,I wish I was smart enough to understand that logic!
Now do something with this wealth besides join the soon to be hanging in trees 1%!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.
Hand-carved from an aluminum block, the 128-gigabyte ZX1 resurrects the iconic portable music player -- minus the cassettes -- for premium buyers in search of high-quality audio.
VIDEO ON MSN MONEY
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'