Google plunge not cause for panic

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Pull up a two-month chart of Google and you'll see a sharp and steady decline that might remind investors of Yahoo, eBay and Amazon.com, circa 2001.

Google ended last year's trading at $691.48 and closed Thursday at $475.39, a scary 31% drop in just two months.

The leader in online search is still a behemoth, with a $149 billion market cap and more than $14 billion in the bank, though for the first time in a while it is trading at what some consider a favorable price-to-earnings ratio of 36. Its 2009 PE is estimated at 19 -- low, relative to where Google has traded in the past.

Some of investors' more recent concerns over Google comes from this week's report from ComScore indicating that clicks on Google's advertisements in the U.S. were down 0.3% last month compared to the same period a year ago. This despite a 39% year-over-year increase in the number of searches performed.

RBC Capital Markets analyst Jordan Rohan, while acknowledging a lousy January, says that the work he and his staff have done indicate a rebound in February.

Plus, he says, "ComScore data captures click volume but ignores revenue per search, which could partially offset the weak volume."

The analyst says that the swoon in Google's stock price makes it a good time to buy shares, and he estimates a 6% risk on the downside but a 50% opportunity on the upside.

"Our rating is 'outperform' and our price target is $675," he said.

Jeffries & Co. analyst Youssef Squali, on the other hand, has the stock only at a "hold" recommendation, even though his price target of $600 suggests that he expects the stock to rise 26% over the course of a year.

Squali has four concerns: decelerating traffic growth on Google.com; increasing guaranteed payments to MySpace; lack of leverage, with the model showing no imminent benefit from scale; and the potential that Google might outbid others in the FCC's 700-MHz auction, an expensive proposition with an uncertain return on investment.

Those issues not withstanding, Squali also says that "Google continues to be well positioned to benefit from secular growth in online advertising."

He also likes that Google's international exposure is substantial, reducing the negative effects of a U.S. recession, if there is to be one.
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