Buy Baidu, Sell Google

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BaiduEven buy-and-hold investors can't afford to let their portfolios collect cobwebs. Valuations and fundamentals change perpetually, and shareholders need to know what they're holding -- and if there's more potential for growth elsewhere. Here we take a look at some stocks worth swapping.

I'm not the only one left scratching my head over Google's (GOOG) decision to buy Motorola Mobility (MMI) in a $12.5 billion deal: Big G's stock opened lower on the news.

Yes, the world's leading search engine has the money. It can also use Motorola's lucrative patents. However, Google was in a good groove without a handset maker on its arm. Its Android operating system for mobile phones already sells better than even Apple's (AAPL) iPhone, because it plays nice with every manufacturer and wireless carrier out there.

So why buy a phone maker of its own? Won't this move make any handset manufacturer not named Motorola a bit hesitant to keep cranking out Android gadgetry for Google, knowing that its efforts will now benefit a rival? And if Google plans to sell off the manufacturing and just keep the patents, isn't it overpaying?

Go Ahead and Ogle Google, But There Are Other Fish Out There

There's no denying that Google is one of the greatest tech stocks on the market -- and it's pretty cheap to boot. Selling for a mere 16 times this year's projected profitability and just 13 times next year's target, Google's attractively priced as the undisputed global leader in search, and the online advertising fruits of that harvest.

From the viral video magic of YouTube to its AdSense website monetization tool, Google is a potent force even beyond search. Its revenue grew 32% to $9 billion in its latest quarter, while adjusted net income improved by 37% to $2.85 billion.

Yes, Google is impressive -- but growth investors can realize gains even faster.

Born on the Baidu

Google may be the global leader, but it's not the top dog in every country. Yandex (YNDX), for example, is Russia's leading player in search. Head out to China, and around 80% of that country's search queries go through Baidu (BIDU).

Baidu isn't a household name outside its home turf, but it's hard to ignore the world's most populous nation, especially when it's still early in its online migration cycle.

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Baidu's latest quarter was another beauty. Revenue soared 78% to $528.4 million, as adjusted earnings leapt 94% to $258 million.

Google is much bigger, but Baidu is much faster. When it comes to net margins -- the percentage of revenue that trickles all the way down to the bottom line -- Baidu breaks the tie in impressive fashion.

Divide Google's $2.85 billion in non-GAAP profit by its $9 billion in revenue, and you arrive at healthy rate of 32%. However, work the same math on Baidu, and you get net margins of nearly 49%.

It's true that you also have to pay a much higher multiple for Baidu. The Chinese dot-com darling is trading at 34 times next year's forecast earnings. However, given the problematic -- if not desperate -- nature of Monday morning's Motorola Mobility purchase, I'll have to turn to China for today's pick.

I'll stick with Baidu.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Baidu, Google, and Apple.

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