Google Not a Buy Yet

On Jan. 19, I wrote a negative article on Google (GOOG - commentary - Cramer's Take). I mentioned that momentum from America's favorite stock would likely slow due to an overall decline in gross domestic product and click-fraud rumors.

Two days later, the Commerce Department said that fourth-quarter advanced GDP showed only 1.1% growth, its slowest pace in three years. This was much lower than the 4.1% average growth from the previous 10 quarters. Three days after that, Google disappointed investors with a less-than-stellar fourth-quarter earnings report, where profits did not meet expectations.

Then this past weekend, Barron's wrote a negative article on Google (which I refer to as the icing on the cake) about how shares could fall another 50% from the current quote. So now we've had a sign of slowing GDP and a clear worsening of sentiment. Still, according to Yahoo! Finance, 23 of 27 analysts covering Google have some sort of buy, outperform, overaverage or overweight rating on the stock.

Sooner or later, these analysts will have to lower ratings and estimates or risk losing face. Each downgrade will be mentioned on CNBC at least five times during the day and will show up in most financial newspapers and Web sites. This likely will lead to institutional selling, particularly among the large-cap growth funds. Mutual fund managers will be reluctant to disclose that Google is among their top-five holdings after the stock lost 100 points, or 25%, in just three weeks.

My article (which was pretty widely criticized) argued that shares of Google would have a tough time moving higher in a slower macro environment, and that that would ultimately lead to negative sentiment. I also mentioned the importance of click fraud, which the company has refused to comment on seriously.

These problems still exist and will push shares of Google even lower. To be clear, I am not implying that Google is a bad company. The company is clearly in the driver's seat in a growing online advertising market. But shares will decline further unless we have some sort of catalyst that sparks consumer and business spending.

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In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research associate at TheStreet.com, where he works closely with Jim Cramer. Previously, he was the editor of The FXC Newsletter and senior research analyst for Greentree Financial.

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