Man, Was That Terrible Advice! I'm Giving it to You Again

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

Back in September, I made a bold statement.  I called Apple (NASDAQ: AAPL) the "King," and laid out my argument that the company would continue to dominate the mobile computing world, and that it was the "buy now" investment over Google (NASDAQ: GOOG), which I labeled the "buy later" stock.  Here's how that worked out:

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AAPL data by YCharts

I managed to make my prediction somewhere very near the all-time high for Apple shares, and we all know what's happened since then.  But before we talk about what this all means for investors today, let's see what we can learn.  A few points:

  • This is a prime example of how trying to play the short-term can go very badly
  • My recommendation was based on the long-term, and that hasn't changed
  • Lastly, this is precisely why it's best to "ease" into any investment, buying in parts, versus trying to "time" the market or go all-in at once

So where are we now?

Interestingly enough, I'd say in the same place.  Apple continues to be essentially the same cash-generating monster that makes products consumers love.  The only two real differences are that it's larger than it was six months ago, and the share price has gone from what I considered a fair valuation, to insanely cheap by nearly any measure. 

Google, on the other hand, has seen its share price (and its valuation) go higher. The stock has made a nice run up over $820 per share in recent weeks, and it could keep going. It's worth mentioning that I've bought shares of Google since the first article, and I plan to add more over time.  But as much as anything, my thesis is tied to the fact that Google is willing to push boundaries outside of mobile and web-based search, in ways that could redefine how we interface with, and use the mobile Web. 

Another table for perspective:

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AAPL Forward PE Ratio data by YCharts

If you haven't seen it this way, I hope this opens your eyes as to how cheap Apple has become. Think about this for a moment. The market is saying that Apple's ability to generate growth in profits is essentially lesser than Microsoft (NASDAQ: MSFT) today. And while I own shares of Microsoft (and will continue to for many years,) let's take a look at what we know:

  • The legacy PC business is entering a decline in the face of a secular shift in the way we use computers
  • Microsoft has (very publicly) failed to make a meaningful entry into mobile computing
  • We are years away from market saturation in mobile, where Apple and Google's Android-based devices dominate

And there is no evidence showing that Apple will grow at a lesser clip than Microsoft going forward. But the market seems to think otherwise. 

Foolish bottom line

If you bought Apple, hang in there. The share price has plummeted, but there's no evidence to support a declining business. To the contrary, the evidence seems to suggest that Apple will continue to grow its business.  If you have spare money to invest (and aren't already overweight,) then the advice I gave you in September is even more pertinent today, especially with Apple. And while Google isn't really expensive today, at least not historically, it is trending upwards. I guess one could say that it's a "fair" price today, but not exactly cheap.

Most importantly, don't follow my advice if you're not planning to invest for the long-term. When I recommended Apple in September, it wasn't based on what the market would bear in a few months. There's too much unpredictability in such a narrow window of time. Another table for a little perspective:

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AAPL PE Ratio TTM data by YCharts

It's important to note that yes, Microsoft is still growing, and while it's down, it's certainly not out of the mobile computing business by any stretch Be that as it may, seeing the market pricing Apple and Microsoft at essentially the same valuation just doesn't make sense. To hammer the point home, here's a look at net income:

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AAPL Net Income TTM data by YCharts

I leave you with this:

Do you really think the market is pricing Apple in a rational manner today? I don't. Not even close. 

Jason Hall owns shares of Apple, Microsoft, and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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!

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