Relative Valuation

The Stalwart makes a good point: Google didn’t miss—Wall Street missed. Their earnings were just fine, but the analysts weren’t in the ballpark.
Now we have a perfect example of the fallacy of “relative valuations.” Google’s stock still isn’t cheap. It is, however, cheaper. That ain’t the same, and I’m sure many investors will jump in thinking they see value.
Not only will investors compare Google to where it was, they’ll also compare it other overpriced stocks like Yahoo (YHOO). Relative valuation was one of the methods analysts used during the Internet Bubble. They compared greatly overpriced stocks to each other, and learned nothing in the process.
In today’s trading, Google fell $30.88, or 7.1%, to $401.78. This level was an all-time high just two-and-a-half months ago. I think there will probably be a counter-reaction to today’s sell-off and Google may rise again. But still, Google is easily $100 overpriced.
Today was a flat day for the Buy List. We gained a whopping 0.08%, while the S&P’s gained 0.19%. SEI Investments (SEIC) led the way with a 2.5% increase.
Here’s some news: Two of our Buy List stocks are suing each other. I guess that balances out, but I’d prefer not to see it that way. Medtronic (MDT) is suing Biomet (BMET) for patent infringement.

Medtronic claims that a cervical plate marketed by Warsaw, Ind.-based Biomet infringes three patents it acquired from Gary Michelson last year. The other patents involve surgical implantation methods commonly used in spinal surgeries.

Posted by on February 1st, 2006 at 9:39 pm


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