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Why It's Time to Buy Google, Apple

by: Faisal Laljee September 15, 2008 | about stocks: AAPL / GOOG    
Faisal Laljee

Faisal Laljee

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I am currently on vacation and my Internet connectivity is intermittent at best. However, I feel compelled to write that I think Google (GOOG) and Apple (AAPL) are currently worth buying.

Google, with its Chrome browser has taken a critical step toward the application software market. They are looking for the desktop interface to be completely replaced by a browser. To that effect, Chrome has an exceptionally robust, yet simple interface. The limited testing that I have done myself shows Chrome to be faster and much more stable than Microsoft's (MSFT) IE 7, which now holds over 70% of the  browser market, with Firefox a distant second with over 20% and Apple's Safari with 6%.

While Chrome has a very long way to go, its purpose is to allow businesses to run remote applications via the browser and run them fast. Conceptually, this design is a stride in the right direction as more and more enterprise software has moved  from desktops to web-client architecture.

So is Chrome my only reason for recommending Google? Heck no! The stock has almost halved over the last 12 months and all because advertising has been affected by a weak economy.  Google's earnings growth is slowing down as evident from their miss last quarter. I think the 50% decline in Google's stock  price is unjustified considering it is still number one in search and  despite the slowdown, their earnings are still growing and at a good pace. The current economic climate will change in a year or so, but this stock at $400 is a once-in-a-life opportunity. Chrome just gives you another reason to buy it.

Apple - all I can say is that I have always been a PC user. I used to also work in an academic computing lab some 10 years ago fixing people's computers and always thought the Mac sucked. However, lately, I have had the opportunity to test a Mac first hand and I can tell you - this is the real deal. That Macs will continue to peel away market share from PCs is a given. Apple's stock meanwhile, is down from its all-time high of around $200 a few months back. In fact, it is down some 25%.

I also tested the new 3g iPhone and it is a thing of beauty. I had been a Palm (PALM) Treo user for many years before switching to a Motorola (MOT) Q this year (a decision I very much regret). I have also been and still am a big fan of  Blackberry (RIMM) but having finally got my hand on a 3g iPhone. I do believe that once companies figure out how to make it work correctly with Microsoft Exchange server, it will be the phone of choice for corporations.

My estimate is that Apple has already sold over 4 million of these new iPhones in the first two months and here is why Apple will make more from these iPhones than the previous version:

  1. The new phones have a higher level of security built in which will prevent buyers from unlocking the phones for use with non-authorized carriers. This means more of these phones will be activated by AT&T (T), which shares its monthly revenue earned from iPhone contracts with Apple.
  2. Open source means a plethora of applications will (and have) hit the market. Best of all, these applications can only be downloaded via iTunes and developers will have to pay Apple for every sale of their product.

Ultimately, the iPhone, the Mac and iTunes are what will drive Apple's earnings going forward. Steve Jobs' health is an overblown issue and I think Apple shareholders will be rewarded for their patience soon.


Disclosure: I own AAPL and RIMM but my position can change
anytime without notice.

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This article has 30 comments:

  •  
    Sep 15 08:22 AM
    And you don't think that there will be less spending on things like Iphones and advertising in the near future?
    Reply
  •  
    Sep 15 08:35 AM
    AAPL down $7.00 pre-market. It blew past critical support level 146.00. This thing's going to $115-$120. Good luck with that Long position.
    Reply
  •  
    Sep 15 08:39 AM
    less advertising?

    $ spend on advertising is directly proportional to the population.....

    as the population on the internet grows....the $'s spent on internet advertising grow.....and since google has over 50% market share in internet search, i think google is an excellent buy
    Reply
  •  
    Sep 15 08:45 AM
    $ spend on advertising is directly proportional to the amount of $$$ a company is generating.

    As the population spends less, companies will have less revenue to start new advertising campaigns. Am I missing something??
    Reply
  •  
    Sep 15 08:51 AM
    Presently the market is in turmoil, for both the stocks there is a possibility of more short term sales. The support levels are poised to break down today.
    Reply
  •  
    Sep 15 09:09 AM
    I watch both of these stocks...

    From a fundamental point of view, no one is going to be buying iPhones and Macs as the economy tanks. No one will be purchasing advertising, either -- remember what happened to the Internet companies in 2000-2001.

    From a technical point of view, the picture is even more bearish:

    - AAPL has broken through an almost 6 year uptrend line about 2 weeks ago by more than 3%. That's enough for me to say watch out below. In addition, also about 2 weeks ago, AAPL broke out of a year-long symmetrical triangle (triangle-top). Last week, AAPL reached a low at $146.00 lower than the previous recent low of $146.53 in the middle of July. It looks like today's market action will easily take out those lows -- premarket currently at $142.08 as I type. Recent high of $180.45 was lower than the last high of $192.24 in April. Lower highs and lower lows mean DOWN TREND. This is not a good time to buy but probably a *PRETTY GOOD* time to sell.

    On GOOG - it clearly broke out (down) out of a year-long triangle top a week or so ago hitting $406.38. This low has not been hit since October, 2006. GOOG is trading around a multi-year low. Not a good time to buy -- falling knife anyone? GOOG also has the same pattern of lower highs and lower lows -- DOWN TREND. I wonder if the author of this article ever picks up a chart book?

    IMHO

    nyc
    Reply
  •  
    Sep 15 09:20 AM
    He doesn't use charts.
    Reply
  •  
    Sep 15 09:27 AM
    "This means more of these phones will be activated by AT&T (T), which shares its monthly revenue earned from iPhone contracts with Apple." NO. That was the deal on the iPhone 1G. The current iteration, iPhone 3G, is heavily subsidized by ATT (approximately $300+ per unit) putting the cash directly into AAPL's pocket at time of sale. No waiting for a % of ATT revenue and consequently dumping a ton of cash into APPL's coffers daily.

    I'm astounded that you are unaware of the arrangements of both iPhone deals. Obviously you know very little about AAPL (and ATT as well).
    Reply
  •  
    Sep 15 09:36 AM
    Article mentions ATT sharing iPhone revenues with Apple - didn't they change that deal with the release of the new phone?
    Reply
  •  
    Sep 15 09:45 AM
    Apple defers booking its revenues from iPhone sales, spreading them out, I think, over a couple of years.
    Reply
  •  
    Sep 15 10:23 AM
    nyc - Really? Do you really believe that the economic slowdown is going to cause trendy people and large corporations from buying a $200 phone with a plan that, though some people have said is costly, is only costing me about $10 more a month?? You can make $200 in a night waiting tables in this country if you work in a decent restaurant. People in the 70's spent that on one crazy night in a club... Com'n!

    IMHO it's a shame that GOOG and AAPL are getting wrapped up in this mess. I just hope the hype/good news coming out of Apple doesn't slow down before the end of this non-recessionary-perio... ;) Google recovers as soon as this is over.

    ...I think I just talked myself into buying Google...
    Reply
  •  
    Sep 15 10:30 AM
    iPhone apps are not "open source", at least not necessarily. "Open source" means their source code is available for view and modification by other developers. I don't know of any iPhone apps that are open source, though some may be. The point is that open source has nothing in particular to do with Apple's App Store distribution model (which as a user I *love*, btw).
    Reply
  •  
    Sep 15 11:13 AM
    Oh my! Google could have named its browser "BIG BROTHER GOLD EDITION" as well. Google is a shameless thieve of privacy information. I will never ever install a google brower on my pc. Heck, mr. softie looks like a schhoolkid in comparison to goog. And mind you, about 90% of my friends and relatives view the google browser the same way. they will never use it - even if it were 20 times more stable than MSIE. Google will certainly make tons of money going forward, no doubt. But I doubt very much that their browser will be as successful as the author thinks. Apart from the fact that he obviously has a pretty one-sided biased view of GOOG.
    Reply
  •  
    Sep 15 11:15 AM
    oh and btw: in our just-in-time and now increasingly web-based society businesses at one future point will learn the hard way HOW VULNERABLE they have become, especially with web-based software, databases and applications.
    Reply
  •  
    Sep 15 11:35 AM
    hey NYC_917

    You do have a compelling argument there. To be honest - I am *&#in scared. I do believe that technical analysis (TA) really doe show trends of sentiment on a stock. Of course, as more people follow TA, it sort of becomes a self-fulfilling prophesy.

    The problem with sticking to TA is that it ignores real-world events. So if Apple -

    1- Announces that it sold 8+ M iPhone 3Gs since July, and/or
    2- Comes out with really exciting new products in the Laptop/sub-laptop lines

    THEN the whole thing will turn on a dime. AND any of these could happen tomorrow.

    Finally, if none of these announcements happen beforehand, there is the probability that they will blow away expectations when they announce their FQ4 earnings in October.

    TA is good, but in the end financials will trump TA.
    Reply
  •  
    Sep 15 12:50 PM
    Apple wins have been stunning , but it is a hard market out there just ask the guys @ MOT. They had some great phones and are now struggling.

    The phone market is fickle and fast paced , what is cool and fab one year is not that great the next. NOK should not be counted out, they have the cash the people and the know how required to come out with some great phones. Remember they are the biggest and best todate, and while Steve and the boys do a great job designing and selling products, so do NOK.

    As to google I am long, but worried a few years from now Chrome will be seen as the high tide in terms of public sentiment. The model has been great to date, but can it continue and still have the confidence of everyday users.
    Also I am not sure corporations really want another MSFT, so I dont not think they will be signing on to googs cloud as fast as one might think.

    .
    Reply
  •  
    Sep 15 01:49 PM
    AAPL is clearly rolling over.

    I sure hope the AAPL fanatics buy some more. The idiotic optimism will be great for keeping the stock from recovering anytime soon.
    Reply
  •  
    Sep 15 02:22 PM
    Who cares about Apple? The price of Apple won't be determined by looking an an Apple chart. It will be determined by the answer to the question: How much worse can it get?

    That's all that matters. The people talking about charts have lost their minds.
    Reply
  •  
    Sep 15 03:09 PM
    I caught hell here when I said aapl 120 by November..standing by it..
    Reply
  •  
    Sep 15 03:29 PM
    120 by November? Maybe, but I wouldn't sell now we're on a downturn. Santa in coming, and he listens to all those kids who want iPods and mommies who want iPhones. Early 2009 it'll be back to 170+ again. I think...
    Reply
  •  
    Sep 15 04:14 PM
    I also think GOOG and AAPL are great buys BUT JUST NOT NOW. the market is going to continue to fall and so will AAPL and GOOG prices. I'd say wait until the federal reserve and govt. finally step in and fix some financial issues in our economy and seeing the housing market move the other direction. I'm not thinking recession, but prices will likely drop more.

    good luck with your position.

    financeninja.wordpress...
    Reply
  •  
    Sep 15 07:20 PM
    When everyone screams "the sky is falling" you are usually close to the bottom, or the end of the world. Either way, you can't go wrong by BUYING.
    Reply
  •  
    Sep 15 10:40 PM
    Hey "jmmx"

    TA is good, but in the end financials will trump TA."

    Just like when the big oil companies report the largest profits in corporate history (Billions of dollars) and the stock goes down...

    Right.

    Your not giving enough credit to TA. How do you think the market movers (hedge funds etc.) enter the market? Based off financial's? Your kidding right?
    Reply
  •  
    Sep 16 06:51 AM
    in the long run, TA doesn't matter one iota. the most successful investors ALL have done without it. Though I have yet to find one who has made his billion$ fortunes by chart -guessing. But hey, teknikk7 might be the first
    oh, and yes, I know about that incredible performance by one or two hedgefunds which use a quantitative approach. I am just not convinced yet that their performance will last another decade or two.
    Reply
  •  
    Sep 16 01:11 PM
    aapl and goog will eventually prevail but the immediate future looks grim, we'll see what happens with AIG and the Feds.
    Reply
  •  
    Sep 16 01:58 PM
    Apple at these prices for a second time is a nice gift! If not for the AIG/Lehman mess there is no way that it would be trading at these levels again. Did everyone forget the two hour lines for weeks at the Apple stores this quarter? Come October 17th we will be reminded that this was such an obvious trading opportunity (granted I said the same thing at $145).
    Reply
  •  
    Sep 17 02:02 AM
    Seriously,

    I'm brazilian and considered investing in the Google IPO. Shares were 90, I didn't get the papers done on time and couldn't grab'em... They skyrocketed since then, and today at 400 I don't think it's a one in a lifetime opportunity..Financial... might be though.
    Reply
  •  
    Sep 19 02:38 PM
    I do look at charts. But give me one chart that looks good in this market.

    Also, charts are good for hind sight. For example, I can point you to 5 different support levels for both Google and Apple that technicians can use between current levels and a 20% up or down from these levels. Bottom line - charts need to be used in conjuction with market psychology and fundamentals. You were quick to point the decline in Apple the day after I published the article. However, that had nothing to do with Apple. It had everything to do with the 500 point drop that took down every thing. Similarly the bounce back in Apple since is also attributable to the market bounce. How do your charts explain crashing through multiple support levels and breaking through multiple resistance levels all within 2 days? What happened to your trends? Use charts but I also advise the occasional common sense.
    Reply
  •  
    Nov 21 03:45 PM
    We love seekingalpha, but we had to post this prediction. Way, way off.
    Reply
  •  
    Nov 21 03:46 PM
    We love seekingalpha, but this prediction looks pretty bad right now. dumbanalysts.com
    Reply
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