Why Yahoo's stock has outperformed Google

Yahoo Inc. (NASDAQ:YHOO) shares have outperformed Google Inc. (NASDAQ:GOOG) so far this year and I couldn't care less.

For one thing, it's only March. The fact that Yahoo is up 19 percent and Google is down 5 percent tells us more about market expectations than the companies.

Yahoo is currently trading at a forward price-to-earnings multiple of 42. Google is trading at a multiple of 24. Analysts are expecting Google's revenue to rise 63 percent in the current quarter to Yahoo's 11 percent., according to Thomson Financial. That doesn't matter much since analysts usually underestimate Google's earnings.

Google's stock has been held back by general unease about the economy, worries about Google's growth rate slowing from double warp speed to warp speed and concerns about competition from Microsoft Corp. (NASDAQ:MSFT) . Moreover, Wall Street also has heard so many great things from the company that now it will only bid up the stock for extraordinarily great news.

The sentiment around Yahoo is more complicated.

Wall Street falls in and out of love with Yahoo about every six months or so. The media makes it sound like Google will drive it out of business tomorrow. While I am not attempting to minimize the threat the search engine giant poses, it's important to remember that Yahoo can still deliver huge audiences for advertisers.

Project Panama will improve Yahoo's search business, but the company will still be under siege from specialty sites and YouTube. It continues to benefit from the shift of display advertising onto the Web. Even though it's a distant second to Google in search, it's still attracts plenty of users. Advertisers also don't like to spend all of their money in one spot even Google.

Remember that investors will turn on both stocks at the slightest sign of trouble.