Catch the Falling Apple or Go Elsewhere?

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Over the last six months Apple (NASDAQ: AAPL) has been taking quite the tumble. The stock has fallen by more than 30% on the back end of a decade run up that saw the stock grow over 17,000%. With the recent drop, this Wall Street darling is trading at a mere 10.35 times earnings; is now the time to get back in? Or should we search elsewhere?

The Case Against Apple

As a disclaimer, I am an Apple product user. I have an iPad and a MacBook but not an iPhone and the reason why is quite simple: They’re not as good as they used to be. When the iPhone first came out, it was revolutionary, it was different, it stood out in the crowd, and it had the best features of any phone out there. By the time the iPhone 4S came about, all of that edge was gone for me. The Samsung Galaxy SIII and the Galaxy Note 2 are phones that offer so much more than the iPhone 5.

Apple is definitely losing in innovation. Back when the company was soaring on the stock exchange they were announcing products that were going to sell like hot cakes. Just take a look at the iPad; it sold like crazy, as did the iPad 2 and then the iPad (3rd generation). I think consumers are getting wise, though, as there was very little difference in the models. They all looked the same; the 2nd generation added a camera and the third added a better resolution display. I have the first gen, and another family member has the third. I think I’d be lying if I said I really noticed a difference in use. Point is, there’s nothing that consumers are saying “wow” to anymore. Apple need to bring back innovation.

A little example on how lacking the innovation is would be the news of the 128GB iPad. It costs a whopping $929 for the cellular enabled version! That’s a whole lot of money, and one could easily buy a high-end PC laptop for that price. I also don’t get the added space as a feature. We’re moving more and more towards cloud, so why would 128GB be needed on the device anymore? On my phone, all my images are stored to DropBox and to my SD card, and to this day I’m still not sure why iOS devices lack an SD card slot.

The Case for Apple

Apple does have some positives going for them, like any company this size would. First off, they have a loyal crowd of followers who buy the 128GB iPad just because Apple made it. These fans are any company’s dream, and I’m sure that Apple likes having them around. It’s innovation that keeps them around though, and Apple will have to keep innovating to keep them coming back for more.

The history of Apple’s innovation is another big plus. They have some of the greatest engineers in the world working under their brand, and they should be pumping out some great products every year. Hopefully for the sake of the company they’re just stuck in a funk.

Their devices are simple to use, I won’t doubt it. There are videos of cats and babies playing with iPads on YouTube--that’s how simple they are. Android is an open system though, and all it takes is a little tweaking from the right company and you have yourself a simple Android system too.

Alternatives

There are two companies in the tech sector that I think you should definitely consider before you catch the falling knife that is Apple. Those companies are Qualcomm (NASDAQ: QCOM) and Google (NASDAQ: GOOG).

First off, the Qualcomm side of things. Well, this company is essentially the go-to company if you want to bring any networked mobile device to market. Their chipsets help connect to 3G & 4G wireless networks as well as provide the “heart” to some devices, its processor. The Qualcomm Snapdragon is one of the best mobile processors in the world, and Qualcomm will likely continue to redesign and reshape the chip as time goes by.

Qualcomm has been experiencing some extraordinary growth over the past few years, and I don’t think it’ll be stopping any time soon. The company has a five-year revenue growth rate of 14.62% and a five-year EPS growth rate of 13.75%. The dividend is also growing by a double digit margin over five years at a rate of 14.82%. Qualcomm is priced under the overall semiconductor market with a P/E of 18.1 versus the industry's 25.3. QCOM also has a great ROI with the five-year average being 15.3%.

How about Google? We all know who they are and what they do but why would we pick the maker of Android over the maker of iOS. It’s because Google is so much more. Sure, they are made up of search and advertising revenues, but the company has many more prospects in many more fields. I’m talking driverless cars, Google Glasses, social networks, analytics, data and many more. Google presents a nice way to play mobile without all of the risks.

Google, like Qualcomm, has also been on the up over the last five years. Revenues have grown by an annual rate of 23.57% and EPS has grown by an annual rate of 22.52%. There is no dividend at Google as they are definitely a growth centric company. The P/E of Google is 23.2, below their industry average of 36.3, and they have a 17.1% ROI.

Final Verdict

While Apple also has good numbers over the last five years, I’m not willing to catch the falling knife of a consumer product company. Apple will have to innovate and create new products to continue to thrive, and the market doesn’t believe that they will be able to.

I would buy shares of both Qualcomm and Google at this stage. Hardly any phone out there in the U.S. market is without some sort of Qualcomm product, and that is an enticing fact. Google has become a particular favorite of mine lately as I looked into all of their future products and how much potential those products could have. 


Ash1402 has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus