I'm not really an Apple (AAPL) bear although you probably couldn't tell that by the series of articles that I've written lately comparing Google (GOOG) and Apple. This article isn't going to help my claim.
Wednesday 5/15/2013 wasn't a good day for Apple. Apple had a down day while most other tech stocks were doing extremely well.
The past year and a half have been difficult for Apple in many ways and investors have been trying to come to grips with the changes. Is it a company that can fuel significant future growth with the large stockpile of iPhone-driven cash? Or will it use that cash to pay out massive dividends and implement a stock buy-back to preserve value even for what seems to be a colder and colder winter ahead.
Google Up At Apple's Expense
Google is one of the tech stocks that benefited from Apple's fall from the tree.
Wednesday, Google launched its annual developer conference, Google I/O, in San Francisco where developers and investors alike watch the Google I/O Keynote for a road-map of upcoming product launches and enhancements. Coming from a company where expectations are very high, Google still didn't disappoint.
Google announced its streaming music service, All Access, that will go head-to-head with Spotify and Pandora; bad news for both of those excellent companies.
It also announced significant improvements in Google Search including addition of voice search to Chrome Desktop, Google Maps, and Google+. Google was a late arrival to the social marketing scene with flops like Google Wave but it seems that Google+ is gaining traction and will make Facebook (FB) fight for its position as the premier social network.
One of the more interesting results of the Google I/O conference is the comparisons that were made between Apple and Google on CNBC. They highlighted the stock charts of both companies with the statement that tech money was flowing from Apple to Google.
If you look at the chart comparing the two companies, you can see the relationship between Apple's decline and Google's climb.
Apple has had a recent rally from the high 300s up to over 460 in late April and early May before drifting down to its current level around 430. This seems to be the result of the influx of income investors after Apple's dividend announcement.
Late yesterday, Jim Cramer went on to blog about the contrast between the two companies describing it as the "spring of hope for owners of Google and the winter of despair for owners of Apple."
Major Moves by Funds
Today was another abysmal day for Apple with some pretty significant moves out of Apple by large funds including a reduction of 41% by David Tepper's Appaloosa Management and a completely closed position by Julian Robertson's Tiger Management. George Soros cut his position in Apple almost 85% while almost doubling his position in Google.
The interesting aspect to this is the counter-trend move by David Einhorn's Greenlight Capital with recent filings showing that it had boosted its stake in Apple while cutting its position in Google. This isn't really all that surprising since Einhorn led the push to have Apple return some of the cash on the books back to investors.
Apple Still Has Further to Fall
One of the more interesting announcements of the day is David Trainer's valuation of Apple at $240 a share. In a reversal of his previous position, Trainer compared Apple's return on invested capital currently at 271% to its competitors with the conclusion that Apple didn't have the innovative chops to sustain it at that level. By comparison, Google was at 31% with the highest ROIC outside of Apple coming from Microsoft (MSFT) at 71%.
As I've said, I'm a fan of Apple Computer and have been for years. In the past I've been an Apple investor taking profits along the way and for the most part, I'm a long investor who only takes a bearish position when it's clear and obvious.
I've written a series of articles on Apple recently describing my opinions and conclusions about Apple's current position as a company in transition. The most controversial article compared the performance of the Apple App Store to Google Play highlighting the difference in market share between the iPhone and Android compared to the revenue for the respective app stores. To me this seems to be the area where Google has to catch up the most but it seems that Google is plowing ahead and is simply ignoring Apple as a competitor rather than taking it on directly.
I also wrote an article about the difference in the way the two companies do business and my conclusions as to why Google has substantial upside where Apple seems to have peaked. If you watch the product announcements for both companies, this seems to be playing out as I described. We have yet to see Apple's product announcements this fall but both the market and I are expecting less than exciting variations on Apple's existing products.
All of these articles have been met with varying amounts of both derision and agreement depending on where the investor was at in the five stages of grief. An interesting anecdote is that my most recent article was met more with agreement with the vehemence of the Apple fans seeming to decline as more and more are accepting the new Apple.
In another few years, the drama will go away and Apple will have its place in retirement portfolios as an income stock.