Dumping Apple Stock for Google: How Investors Could Get Burned

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Talk about two stocks going in the opposite direction: Apple stock (Nasdaq: AAPL) is trading near its 52-week lows, while Google Inc. (Nasdaq: GOOG) recently hit an all-time high.

The trend has some wondering if investors are consciously moving their money from one tech giant to the other.

"There's a lot of money that likes the tech sector, and I think Google has kind of taken over from Apple," Eric Kuby, chief investment officer at North Star Investment Management, told Reuters.

Looking at the charts, it's clear that Google stock is now enjoying the kind of momentum that Apple had for years, while sentiment toward AAPL almost couldn't get any more bearish.

Since Apple stock hit its all-time high of $705.07 in September, it has plunged 40% and lost more than $260 billion in market capitalization. AAPL is down more than 20% year to date.

Google hit several new highs recently, and poked briefly above $840 in early trading Wednesday. Google stock is up 48% from its mid-June low last year, and up 17.5% so far this year.

And at least two analysts recently put a $1,000 price target on GOOG, reminiscent of last year when analysts were rushing to put a $1,000 price target on Apple.

"The bulls are in Google's camp, and the bears are in Apple's camp at the moment," Neil Mawston, the executive director of Strategy Analytics, told CNBC.com, which speculated that Google could be replacing Apple as the dominant tech giant, as Apple supplanted Microsoft Corp. (Nasdaq: MSFT) in the past decade.

But any Apple investors who haven't already dumped shares in favor of jumping on the Google stock bandwagon might want to think twice before doing so now.

What Could Stop the Google Stock (Nasdaq: GOOG) Momentum

Just as when Apple was soaring, investors are in love with Google's potential for growth.

"We believemobility, together with continued innovation in search such as new formats and better targeting, willsupport growth of search revenues in the double digits for several years to come," Sanford Berstein analyst Carlos Kirjner wrote to clients in a January note that raised the company's target on GOOG to $1,000."We also believeYouTube is already a multibillion dollar business, growing fast and with healthy operating margins,whose growth potential is not fully reflected in consensus."

While Google has strong growth prospects, it's not likely to see the kind of exponential growth that helped propel Apple stock.

Apple was increasing revenue 50%-100% for much of the two years its stock really took off; Google's revenue growth is in the healthy 35% range, but that is not likely to sustain a steep increase in share price.

Google's fundamentals aren't as strong as Apple's were, either.  Its trailing P/E is somewhat high at 25.64, and even its forward P/E is 15.53. Even when its stock was soaring, Apple's P/E was in the 12 to 13 range.

This isn't to say that GOOG is going to plummet. But stocks that shoot up rapidly on euphoric sentiment – and that form a chart that looks like a hockey stick – are usually overheating.

And if there's anything that can be drawn from the saga of AAPL, it's that when sentiment turns, it usually happens quickly and brings a lot of pain to retail investors caught flat-footed.

Why It's Too Soon to Bury Apple Stock (Nasdaq: AAPL) 

It's all too obvious that Wall Street has completely reversed course on Apple stock.

Disappointing earnings, slowing growth of iPhone sales and the ongoing lack of any new and exciting products have turned analysts against AAPL.

"Another Monday has come and gone with nothing from Apple's management," Colin Gillis, technology analyst at BGC Partners, told the Financial Times this week. "There's been no news on new products, there's no news on dividends, there's no news -
period – from the company."

But while Apple stock isn't going to shoot to $1,000 any time soon, it's beaten down enough that it's not likely to fall much further. So selling now, particularly if you bought it at $500 or higher, could be a lousy strategy.

Fundamentally, Apple is as solid as it ever was. The company has a cash pile of $137 billion and no debt. Its trailing P/E has shrunk to 9.73 and its forward P/E is just 8.5.

Plus, the dividend that it started paying last year now is delivering a yield of 2.5%, which makes the stock more attractive to income and value investors.

Should Apple unveil a breakthrough new product in 2013, AAPL could rebound in a hurry. Even if it doesn't get back up to $700, it could easily get back over $500 and possibly $600, depending on what the company does this year.

Money Morning Capital Wave Strategist Shah Gilani sees Apple's bruises as an opportunity.

"Management has to do something to get the price moving up again, and it has to do it soon," Gilani said in a note to subscribers of his DealBook service today (Wednesday). "They are going to have to raise the dividend, and if they are smart, they are going to split the stock to make it a retail stock (meaning most people can afford to buy 100 or so shares) to bring in the folks who are Apple mad and want to own the shares after they missed the run-up."

Gilani added that Apple could use its huge cash hoard to make a deal "that would really stagger the market."

So while Apple stock and Google stock have been going in opposite directions lately, think twice about betting on that to continue for any length of time.

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  1. H. Craig Bradley | March 6, 2013

    REACTION TIME

    Large organizations, like Apple, are in fact bureaucracies. As such, they often tend to study things a bit too long before making a decision and sometimes, they make realatively poor decisions. Taking alot of time to mull over a matter does not necessarily mean good decisions will result. More is involved in good decisions made in a timely manner .

    Taking a long time to decide on whether to increase the dividend is not that complicated, especially if we are talking about only a .5% dividend increase and/or a stock split. Apple has not split since 1995, so there may be some resistance on the Board of Directors to splits in general. Speaking about Apple's Board we seem to have little inside knowledge about how well they work together as a team. Its possible there may not be a consensus on matters at hand such as a annual increase in the dividend payout to shareholders.

    Leadership is the key in these instances. Right now, the market has reservations about CEO Tim Cook's judgement ability and corporate leadership skills, as well. He is used to managing things quietly and secretly (privately) in the background and in a bureaucrat's time frame. This managerial approach simply won't satisfy the market, given its impatience and high expectations for Apple to perform. If excess delay and poor decisions are what's in the offing at Apple, then the stock won't make it back to $600/share any time soon.

  2. H. Craig Bradley | March 6, 2013

    Al Gore, a long time Apple Board Member, should be replaced with a more qualified and knowledgable (tech sector) person who does not exaggerate or lie ( "I invented the internet").

  3. Edgar | March 8, 2013

    I dont understand when you say "no debt", there is long term and short term debt currently on their balance sheet. Am i looking at it wrong?

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