Chris Lau - Seeking Alpha

Saturday, August 30, 2008

Watch Technology Stock Leaders Who are Lagging in Performance

Dell's weak earnings do not concern me, but Google's relatively weak performance on the market does. Google is an industry leader in the Internet technology space. The other leaders that need to be closely monitored are those who rely on business or consumer spending. To measure the health of corporate spending, Research In Motion's performance must be closely monitored in the weeks ahead. To measure the health of personal spending, Apple's performance must be closely monitored.

Hot Stock: Google

Disclaimer: Google owns blogger.com, which hosts this blog. Google's AdSense is also a revenue source for this site. Notice the ads, top, right, and below? Were you compelled to click on it? Your reaction would be an indicator of the effectiveness of advertising for Google. (Go ahead though to click on the ads)

Summary:

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Corporate Fundamentals for Google are healthy relative to Internet property stocks, but Google faces strong negative trading patterns. Target price is $400-$425 based on technical analysis.

Fundamental Analysis:
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Despite Wall street\'s love for the company, Google is still an advertising company. While iGoogle tools, new entrance to the mobile market, and Google applications make the headlines, its dominance in the search engine market allows the company to command most of its income in advertising.

Despite the strengths, Google will be succeptable to a weaker US and global economy. Organizations must reduce advertising spending under such circumstances, and Google will be faced with declining revenue. Investors must be cautious not to pay a p/e premium under such an environment.

Technical Analysis:
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The uptrend that began in October 2005 was broken on February 2008. At that time, it was realized the U.S. was or would face a recession. In May 2008 the stock attempted to resume this uptrend, but this failed. The stock is now retreating and will possibly trade to the low $400 level. See below:

A breach below $400 isn't impossible, but does not appear to be likely. If that were to occur, look for the stock to trade to $300.


Seasonality:
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Nov 2008 - May 2009 is a period of seasonal strength for Tech stocks. A re-evaluation will be required when this period approaches.

Conclusion:
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Sell Google on strength, as risks remain that the stock will be at the the low $400 level.
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