Google (GOOG) and Baidu (BIDU) have not been immune from the recent correction within the market. The internet search trade has been a choppy trade to say the least these last 3 months. GOOG has been a very unpredictable trade due to the interpretation of earnings and the current over all selling market condition. BIDU, even with great earnings, has been sold because of the recent European crisis and the slowing down within China. BIDU, in comparing its chart to GOOG, has been a more controlled and predictable correction. Even though these two companies have pulled back they are beginning to look like they are trying to find a near term base.
Fundamentally, the two stocks are strong growth momentum companies. GOOG and BIDU are great choices for portfolio holdings deserving a fundamental and technical look. Fundamentally, BIDU is a stronger company with a 73% gross profit margin; because of this BIDU can bring a great deal of free cash flow to the company's balance sheet. The current EPS is 1.14 cents per share but is expected to swell next fiscal year to $6.48 per share. BIDU has a great growth rate which is expected to continue to be around 56%. BIDU's PEG ratio is .64 which is very comparable but slightly better than GOOG's at .85. BIDU represents a momentum and growth play with the possibility of good share appreciation.
GOOG is fundamentally just as strong as BIDU. GOOG has a gross profit margin of 65% which will also bring a great deal of free cash flow to the balance sheet. Current EPS is $10.10 per share but is expected to grow by next fiscal year to $50.61. GOOG's growth rate is erratic from 14.4 to 25.8 which could explain one reason why the stock is trading choppy with investors trying to gauge GOOG's future growth. Like BIDU, GOOG represents a momentum and growth play with the possibility of good share appreciation.
Technically, BIDU has a slightly better constructive chart pattern. Near term support is at 114 with resistance all the way up to 145. Slow stochastic and MACD seem to be currently rolling over suggesting a possible pullback. The BIDU chart looks like you can wait for a bounce off of 115 with a stop loss around 114 to begin a longer term position. Pay attention to volume because it has been weak for both BIDU and GOOG. Until we see higher than average buy volume we would recommend staying away from buying either company.
Technically, GOOG has a choppy pattern with no real defined bottom at the current time period. GOOG recently set a lower low at around the 560 price level and currently is moving in a dead cat bounce pattern. We need to see GOOG set a higher low before we can get excited to open a new GOOG position. Until then we would recommend waiting until GOOG can bounce higher than the current 560 support level.
Both GOOG and BIDU are future momentum and growth plays with great fundamentals. Buyers and holders of GOOG and BIDU will be rewarded if they have patience and let the chart of each develop over time. Watch support levels carefully and always use stop losses and you will be reward with price appreciation in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
