2 Tech Buys for March

Once the market's fast-growing darlings, many technology stocks now fully or nearly qualify as blue chip stocks. Even more surprisingly, many of them trade at conservative valuations. Two of these stocks -- Google (NASDAQ: GOOGL  ) and Baidu (NASDAQ: BIDU  ) -- stand out as great buying opportunities for patient investors.

Google
Google's 15% rise over the last three months, to a current price near $800, may scare plenty of investors away. But haggling over price on this stock could leave you Google-less; there is little reason for Google to trade at a discount given its outstanding prospects. If the company's growth in online search isn't enough to convince you that Google's stock is worth buying, there are several other areas of potential expansion that could prove lucrative as well.

For instance, Google's aggressive stance on acquisitions, combined with its $48 billion cash hoard, could prove very helpful in creating new business opportunities for the company over the next few years. Last Thursday, Google CFO Patrick Pichette explained that Google plans to keep its $48 billion in cash on hand in order to "pounce" on acquisitions when the opportunities surface. As an example, Pichette cited Google's $12 billion acquisition of Motorola; the example hints at management's continued willingness to make large acquisitions.

In contrast, Apple (NASDAQ: AAPL  ) seems to be approaching the law of large numbers when it comes to acquisitions. With a $400 billion market cap and more than $100 billion sitting idle, Apple is running out of growth opportunities meaningful enough to move the dial. As the company's board of directors continues their "active discussions about returning additional cash to shareholders," the stock continues to fall.

As Google ponders more potentially aggressive acquisitions, it's stirring up a new, Apple-like hardware strategy from within. Though its $1,300 price tag is raising eyebrows, the launch of the new Chromebook Pixel is the first evidence of Google's major shift in strategy in an attempt to profit from hardware sales up front. Though Google has a long way to go to be on par with Apple when it comes to consumer electronics, its attempt is noteworthy, adding upside potential to Google's stock over the long haul.

Google may carry a seemingly hefty P/E at 24.5. But investors need only to look at the company's forward P/E ratio to put things in clearer perspective. Trading at just 17.7 times expected future earnings, Google is still a solid choice for buy-and-hold investors looking for a long-term core holding.

Baidu
China's online search king, Baidu, trades at a significant discount from its price one year ago. In fact, the stock fell more than 15% in February alone, after the company reported plummeting growth rates in average client ad spending during the fourth quarter, and issued guidance for higher research and development spending going forward. Decelerating growth and strengthening competition are now top investor concerns.

But a closer look reveals that the sell-off has created a buying opportunity. The company's decelerating revenue growth during the quarter was primarily due to the slowing growth in ad spending per customer.

And as Morningstar analyst Dan Su points out, slowing average ad spending is inevitable, since Baidu's impressive double-digit ad spending growth rates have been primarily driven by a limited number of very large clients. As these large clients max out their advertising spending, Baidu's growing advertising client base should offset declines in ad spending growth rates to drive Baidu's future revenue growth. And fortunately for investors, its advertising client base growth actually increased, from 13% year-over-year growth in the year-ago quarter to 31% growth in Q4 2012. 

Yes, there is Qihoo (NYSE: QIHU  ) -- a disruptive Chinese web browser and anti-virus software company. Its search engine, launched in August 2012, already boasts about 10% market share. The competitor's easy entrance into search is undoubtedly unsettling with Baidu -- and especially Baidu investors.

In fact, Morningstar's Su names Qihoo as one of the primary reasons for Baidu's higher traffic acquisition costs, as Baidu buys more PC search traffic from partners. But comparing Qihoo's $45 million in free cash flow over the trailing 12 months to Baidu's $10.3 billion adds some perspective to Baidu's outsized bargaining power with partners.

Thanks to the recent sell-off, Baidu is available at just 19 times earnings, despite an increase in both revenue and EPS of 41% and 36%, respectively, from the year-ago quarter. Furthermore, most analysts remain bullish on the stock, with 15 of 22 Baidu analysts reported by Motley Fool CAPS still giving the stock an outperform rating.

Online search is here to stay
There is no doubt that online search will continue to play an increasing role in our everyday lives. Google and Baidu are, far and away, the clear leaders in online search in their respective markets. Why not pick up one of these great companies today while they are both available at reasonable prices despite their bullish prospects for growth?

I've made an outperform CAPScall on both, but as Baidu continued to fall after its fourth-quarter earnings release, I've since made it a top pick. Likewise, if you're wondering which one to start with, Baidu is a great bet.

Regardless of your short-term view on the Chinese economy, there may be opportunity in Baidu (aka the "Chinese Google"). Our brand-new premium report breaks down the dominant Chinese search provider's strengths and weaknesses. Just click here to access it now.


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