Today's 3 Stock Picks: GOOG, WMT, RTP

Google: Investors Applaud Pink Slips

Google (GOOG) saw its shares move higher Tuesday as the market reacted to news of cutbacks among contract workers at the online search giant.

The Mountain View, Calif., company said it will "significantly reduce" its total number of contract workers, now at about 10,000, but is not cutting its in-house staff of about 20,000.

Recent data from Nielsen Online placed Google firmly at the top of U.S. search engines, with a 61.2% market share for October, representing 8.1% growth from a year ago.

"Google continues to gain audience market share from its competitors and dominates the rankings in the U.S. while both Yahoo (YHOO) and Microsoft (MSFT) continue on a downward trend," Thomas Weisel Partners analyst Christa Quarles wrote Monday.

But Google shares are still suffering along with the rest of the market. Company co-founder Sergey Brin last month said costs were high and needed to be reduced.

Gabelli & Co. analyst Rob Haley says the contract-worker cutbacks are an indication of basic strategic shifts, but he doesn't believe the news fully explains the one-day jump.

"The stock has just been so volatile lately that it's hard to pin down reasons for moves either way," he says "But [the cutbacks] are consistent with what they've been saying lately, that they will focus on cost cutting and operating more efficiently."

Bottom Line: Buy
Google shares are worth 40% of what they were a year ago, though that mirrors the broad market decline closely. Online advertising will continue to grow, if not as fast as some earlier projections, and the former high-flyer still commands a dominant position in the market.

Wal-Mart: Frugality Comes Into Style

On the eve of what's shaping up to be a dismal holiday shopping season, shares of Wal-Mart Stores (WMT) rose Tuesday following an analyst upgrade spotlighting the company's strength in a down market.

Up nearly 20% over the past year, Wal-Mart is the only Dow component stock to keep gains over that period. The 30-stock industrial average has shed a third of its value in the past 52 weeks.

William Blair & Co. analyst Mark Miller on Monday upgraded the stock to Outperform from Market perform, saying Wal-Mart's ability to thrive in a recession as a discount retailer was bolstered by internal improvements in its operations.

"Based on the sharp decline in economic conditions, we now anticipate that the advantages of Wal-Mart's model will be more pronounced and sustainable," he wrote. "In addition to a more-favorable environment for Wal-Mart (on relative terms), we perceive that the stronger operating performance of Wal-Mart is being driven by improvements across merchandising, store operations, and marketing."

ThinkPanmure analyst Edward Weller says doomsayers have missed a few other stocks that are faring well amid the broad market collapse like Netflix (NFLX), the DVD-by-mail company. He adds that Wal-Mart's economic power is considerable.

"They're lucky enough to be in the right place, and they're improving their business," he says. Wal-Mart's same-store sales are growing, it's taking market share from competitors and gaining ground in its electronics sales at the expense of Best Buy (BBY) and Circuit City.

Miller, of William Blair, says Wal-Mart remains committed to internal reform and notes that fashions and trends have caught up to the retailer's basic ethic.

"Increasingly, consumer purchase decisions are being driven by price/value rather than service, premium assortment and convenience," he wrote. "Saving money is the new fashion trend, and Wal-Mart is becoming increasingly relevant to a growing proportion of U.S. (and global) households."

Bottom Line: Buy
People are spending less, and being more careful where they buy. Wal-Mart's reach and pricing make it a prime destination, especially in tough times.

Rio Tinto: Mining Buyout Gets Shaft

Depositary shares of Rio Tinto (RTP) got the pickax Tuesday after Australian mining giant BHP Billiton (BHP) pulled its hostile takeover bid, citing unfavorable financing conditions for the $78 billion deal that would've created the world's largest mining company.

BHP Billiton, based in Melbourne, said Tuesday that the global drop in commodity prices and high cost of financing meant the deal no longer made sense for shareholders.

"While we have not changed our view of the basic industrial logic of the combination, or of the longer term prospects for natural resource demand growth driven by emerging economies, we have concerns about the continued deterioration of near term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value," BHP Chairman Don Argus said in a statement.

"Recent global events and associated falls in commodity prices...have altered risk dimensions. BHP Billiton is very focused on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level."

A statement from Rio Tinto, with main offices in Australia and the U.K., said the company was aware that BHP Billiton "will not pursue its preconditional offers for the acquisition of Rio Tinto."

Edison Investment analyst Charles Gibson wrote Nov. 13 that despite the fall-off in global commodity prices and the company's announced 10% cuts in iron ore and aluminum production, investors had already oversold the stock.

Annie Sorich, an analyst at Morningstar, said the merger environment has swung 180 degrees for commodity-related companies in the collapse of the global boom.

"Last year we saw all sorts of giant mining megadeals trying to go through, and none came to fruition because the price was always too high," she says. "Now I would say we won't even see the topic broached for some time, given the dramatic decrease in cash flows these companies are facing."

Bottom Line: Hold
Be patient. Betting on mergers is always a risk, particularly in a volatile sector such as mining. This stock has lost a bit more than 75% of its value over the past year, and while the boom times are gone, selling into this sort of weakness is unwise.