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Google Vs. Yahoo: Which One Should You Trade?

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From this trader's point of view, one company is a much better choice in the short term.

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As companies, Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) are tech firms that represent more than just search engines. Both have built household brands; Google has even influenced our everyday language, making "googling" a verb. We have become dependent on tools from both of these huge search engines, and many investors may believe that either of these two companies would be a wise investment. However, from a trader's point of view, looking deeper at both the fundamental and technical showings for both stocks, I believe that one is a much better option to include in a portfolio in the short term.  

Google
 
GOOGL's revenue growth over the last five years has averaged 22% annually. Its revenue is linked primarily to Search, YouTube, and Google mobile phones. Search earnings have brought around 78% of revenue, YouTube around 9.5%, and Google phones around 9%. Google search, also a platform for search advertising, has dominated and continues to dominate the sector, with about 70% market share.
 
More than just a search engine, Google continues to acquire new companies, which has allowed it to launch new functions, like video hosting, and devices, such as mobile phones, Google Glass, and more.  The company has a knack for being able to acquire the right new initiative at the right time.  With strong financials, GOOGL, from a fundamental perspective, is looking like a buy. Now, being that I am a trader who relies on price action, I want to also share my perspective from a technical point of view.


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GOOGL -- and previous to the share split in 2014, GOOG -- have proven to be stocks that trend well. Looking at the daily chart of GOOGL demonstrates how price is moving in a strong long trend that respects the support from moving averages. Currently GOOGL is trading at $572.54 and has been moving up above the weekly 13 EMA around $559. The stock trades with good volume at approximately 3 million shares per day, and has favorable liquidity. Even the GOOGL options provide high open interest.
 
Historically the price action of GOOGL paints a picture of a stock that respects technical patterns in trend. Specifically, over the last few years the stock has respected the 21 EMA with only some occasional deeper pullbacks at the 100 EMA. Even with the recent split, this pattern has not been broken. Right now $520 is strong support from historical price action, with targets for price at the recent highs around $610. Even Fibonacci extensions at the 100% retracement level also coincide with the $610 level, making this a strong target.

Yahoo
 
Yahoo, another large company in the digital space, is most notable for its search engine and email. Yahoo seems to have lagged behind its rival Google as it has struggled to create a unique identity in the information-gathering space.  Just like GOOG, however, YHOO is also acquiring new companies: It owns Flicker and Tumblr, and recently announced its plans to begin streaming television series, as Netflix (NASDAQ:NFLX) does, in an effort to take hold of the growth in online media entertainment. This latest initiative will probably align Yahoo well to compete against Google's YouTube by providing a higher quality video content alternative.

Unlike Google, however, Yahoo has not done a stellar job of branding its pages. Yahoo has not created as cohesive a look for its various platforms, and news articles are the most predominant feature of its search page.


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From a technical perspective, Yahoo's stock growth is similar to its fundamentals. YHOO has strength but has not experienced the same growth in stock price relative to Google. 

Currently it is trading close to a well-known level of strong support, the 21 EMA, on the daily chart. With YHOO trading at $33.50, it is currently just above the weekly 21 EMA, around $35. Technically speaking, Yahoo's chart pattern has signs of weakness, with price being in a downtrend since January 2014, dropping from a high of $41.50 to a low around $32.

On the daily chart, it looks like price has just begun to make a push up, but it will take some time to see whether this new momentum will sustain itself so it can rebuild its trading price. At this time I would opt to trade the stronger performing GOOGL and wait to see what happens with YHOO.
 
The Trade
 
Not only does GOOGL have strong performance on the charts, it also has good financials. It remains above its daily 21 EMA, around $561, which is a place to begin looking for long trades. I like the idea of taking an entry off of support from the 21 EMA on the daily chart. Since I am an options trader, I would be looking at two primary strategies to trade GOOGL: First would be a $550/545 put credit spread. My assumption here is that GOOGL is going to go up, and the 21 EMA and 100 EMA on the daily chart will provide resistance at $555 and $553, respectively.

A second trade that I would consider would be to sell an at-the-money put credit spread $570/565, looking for strength into the prior price resistance at $580. I would not buy a call at this time as price has some previous resistance to clear at $580; the credit spreads allow me to profit if the stock stays flat or goes up.  These options strategies align with my trading assumption that GOOGL will trade sideways to up over the next few weeks.     
 
Sarah Potter is a trader, author, and the founder of SheCanTrade.com. Sarah's book How You Can Trade Like a Pro is a straightforward guide to trading options, futures, stocks, and ETFs. Sarah's YouTube channel has a growing library of videos on trading strategies, market analysis, and live trading sessions.
No positions in stocks mentioned.
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