Despite Downgrade, Analyst Sees Google as Core Holding for Some

Although Google stock has risen sharply since the summer, nearly tripling the rise in the S&P 500 during the same period, one analyst thinks the tech company is now a less compelling opportunity for value investors. Still, he does see it as a name to own for growth investors.

Following a 39-percent surge in Google's share price since June 14, the stock's price-to-earnings ratio has risen to about 17x from 12x. This has sparked a change in investor sentiment, according to a new research report from BMO Capital Markets. The firm's analysts downgraded the stock to "market perform" from "outperform," but maintained a $790 price target on its shares.

"That should be interpreted as saying this is a core holding, but it's not something we'd put new money to work in right now," said Daniel Salmon, an analyst at BMO Capital Markets. "Instead we'd maybe look elsewhere to do that and instead look for a better entry point on Google."

The report highlighted Texas Instruments, EMC, Qualcomm, and Oracle as possible new positions for investors.

Salmon told CNBC's "Squawk on the Street" that BMO also downgraded Facebook last week even though he thinks both the social media giant and Google are "great companies that are doing great business these days."

Salmon added that a pause is in order for both names and that he would wait for a market pullback or a new catalyst to purchase. Even though he thinks the stock is less compelling for value investors, he said it remains a core holding for the long-term oriented growth investor.

David Paul Morris | Bloomberg | Getty Images

"I think it very much fits the profile of a growth- or technology-oriented investor still," he said. "A 17 times forward [price-to-earnings ratio] is not uncompelling for them. They're used to more highly valued stocks."

BMO said it would consider becoming proactive on the stock again if new Motorola products are greeted positively, or if it sees more dynamic YouTube monetization.

"If we get a more dynamic story around YouTube, like, for example, paying for subscriptions where a value or a media investor could start to look at it as a cable network more, that's something that definitely be interesting," he said.

—By CNBC.com's Katie Little; Follow on Twitter @Katie_Little

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Disclosures:

BMO or an affiliate received investment banking services compensation in the past 12 months and makes a market in this security.

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