MorningWord 1/8/15: Like Comparing Apples to Googles

by Dan January 8, 2016 9:42 am • Commentary

Last night on CNBC’s Fast Money we had a discussion about, wait for it, Apple (AAPL). You know the usual questions, why has it under-performed the broad market given its cheap valuation, fortress balance sheet, dominant high end smartphone market share, silly levels of profitability etc, etc.. At this point, with the stock down nearly 30% from the all time highs made last year, what’s becoming evident is that the stock is NOT trading on trailing fundamentals, it’s trading like many other risk assets, with a tinge of uncertainty about the future. I think it’s safe to say that Apple’s future is very profitable. So the stock’s 22% losses since the start of November vs about an 8.5% decline in the S&P 500 (SPX), has a lot more to do with positioning and sentiment, than it does fundamentals.  In my opinion AAPL is very close to hitting a level where investors who have not been on board should start picking at it, as it is my belief that those who can weather near term volatility will find themselves long a stock that should be much higher 2-5 years from now.  As I wrote on Wednesday, a re-test and a hold of the long term uptrend since its 2009 lows is the spot.

Taking a longer term view of AAPL’s chart (since its 2009 financial crisis lows) the stock is sitting on important long term support at $100 (the 2012 high prior to its 45% decline) with no obvious support below until the long term uptrend in the mid $80s:


OK, ENOUGH about AAPL. We all know what to do, and where to do it.

Last night I shifted our AAPL discussion to Google (GOOGL).  What happened plain and simple in AAPL at some point last year was an investor sentiment shift (not financial press or Wall Street brokerage).  With AAPL’s recent decline, it has shed almost $150 billion in market cap, now at $535 billion, just $30 billion more than GOOGL. Comparing these two companies and their revenue mix is nothing short of Apples to Googles, but remember that if investors could sell AAPL off 30% from its highs in a half of year, regardless of the factors listed above (but most importantly valuation) then investors could clearly set their sights on GOOGL.  While GOOGL is very different (better that is, profitability/valuation) in my mind from Facebook (FB) or Amazon (AMZN) for a ton of reasons, I suspect P/E at 25x trailing and 22x expected seems reasonable if earnings really do grow 18% in 2016, but that would be a pretty healthy acceleration from 2015’s expected 13% eps growth and also mark its greatest percentage increase since 2011. GOOGL was up 47% in 2015, and only down 5% so far in 2016. If investor sentiment gets too bad too quick in AAPL, and the market remains volatile, GOOGL could be the next spot where investors look to raise cash.

Here is your spot to BUY GOOGL, $650ish, yep down $100 where the stock has good technical support at its 200 day moving average (yellow line):

GOOGL 1yr chart from Bloomberg
GOOGL 1yr chart from Bloomberg