S&P Capital IQ On Facebook's Advantage Over Google

Facebook Inc FB shares are on a roll as the company prepares to declare its second-quarter earnings next week.

Scott Kessler, S&P Capital IQ, was on CNBC Monday to discuss how Facebook is not overvalued as many experts believe it to be and why it's a better stock currently than Google Inc GOOGL GOOG.

Facebook's Levers

"We like the concept of buying low and selling high, and that's exactly what we are trying to embody here," Kessler began. "In comparison to Facebook, we have a Buy opinion on the stock going into results next week. The way we are thinking about it, though, is really if you look on the top-line."

He went on, "I mean, Facebook has two to three times the growth that Google does at this point, and we see a lot more levers for gains, as opposed to Google where it seems to be a cost containment story at this point. So, we really like the fundamental story for Facebook a lot more, and people think it's a lot more highly valued, frankly, than it is in our opinion."

Related Link: People Using Cryptocurrency For Secret Communication

Quite Reasonably Valued

Kessler elaborated how Facebook is not as overvalued as it seems, saying, "When we think about Facebook, we think about a strong organic growth story. We think about continuing investment in some of the kind of emerging opportunities, whether you are thinking about video or you are looking at Instagram. I think down the road, you can see more monetization from WhatsApp.

"So, for us, and if you look back the last couple of quarters, Facebook has actually traded down because they have had negative impacts from currency. And of course, they have been spending very aggressively. I think people are thinking a little bit differently about Facebook now, and they see it as actually pretty reasonably valued.

"If you look on next year's earnings, it's trading kind of in that 30 to 40 multiple, and that is exactly where the revenue growth is expected to be. Not a premium that a lot of people would have you believe, especially as the market capitalization has increased," Kessler concluded.