No, Google is not the new Apple, in most important respects.
The acceleration in Google Inc. (GOOG) shares above $900 this month, its impressive 41% gain over the past six months, the appearance of a few $1,000 analyst price targets and the avid sponsorship of the stock’s fans have prompted renewed comparisons to Apple Inc.’s (AAPL) massive surge-and-fizzle act last year.
Yet the differences are clear and significant, and they work in favor of Google investors for now.
*The rate of ascent in Google shares has been far more subdued than the Apple moon-shot of 2012. In the first quarter of last year alone, Apple gained more than 50%, approximately twice the pace of Google’s entire year-to-date 2013 gain.
Apple last year ramped from $405 to an ultimate high in September of $702, in the process becoming the most valuable company in history at a $700 billion market capitalization.
While true that Google’s near-vertical 18% ascent in the past few weeks appears extreme, and primes the stock for a leveling-off or pullback at least, the stock overall has been on a measured -- if nicely market-beating -- climb the past year. Its market value just eclipsed $300 billion, placing it somewhat below the “too big to succeed” market tier that Apple had breached.
*Public and Wall Street sentiment is not nearly as frenzied around Google today as it was when it came to Apple a year ago. Apple was almost a market of its own, skyrocketing on a wave of enthusiasm over the iPad and iPhone 5 launch in a flattish overall market. It was not only the most pervasively owned hedge-fund stock, but individual investors came out of their bunker to buy it in the hackneyed “love the product, own the stock.”
Google, it’s true, is the most heavily owned stock by actively managed mutual funds this year. Yet, whereas analysts a year ago were climbing over one another to slap ever-splashier price targets on Apple, the Street is relatively sober when it comes to Google.
When Apple attracted its first $1,000 share-price forecast in April 2012, the stock was near $600, meaning it represented a ferociously bullish prediction of another 66% upside. When the stock peaked in September just above $700, the median analyst target was almost 13% higher, at $792.
Google only saw its first $1,000 target as the stock neared $900, so it amounted to a ho-hum call for another 10% or so appreciation. Indeed, the highest published target of $1,025 is only 13% up from here (where Apple’s median target was when the stock peaked) and the median price target on Google today is $917, according to FactSet, barely above the current quote of $909.
By last summer, 94% of all analysts on Apple rated the stock a Buy, and 4% a Hold. Today, the Street likes, but doesn’t adore, Google, with 72% of analysts with Buys and 28% at a Hold.
*While neither stock ever got to a point of wild overvaluation, Google’s business dynamics are less vulnerable to the kind of hit-driven product cycles and profit-compressing competitive gambits that withered investor confidence and trashed growth expectations in Apple.
Google’s secure-seeming dominance of search and mobile-phone software allows it to essentially grow along with, and somewhat faster than, the online and mobile advertising markets as a whole, while pursuing new platforms and product areas with a measured, multi-year approach.
It’s certainly true that Google shares are no longer the relative bargain they seemed only months ago. The stock now trades for 20 times consensus profit forecasts of $45.92 a share for 2013, and about 17 times 2014, certainly a premium to the broad market but merely in line with other high-quality bellwethers such as Coca-Cola Co. (KO).
Meantime, Google has much better growth prospects, and current earnings are from its healthy core businesses, essentially giving investors an upside option on whatever cool thing emerges next, whether wearable technology or something as-yet unknown.
- Information Technology