Could One of These Be the Next Apple?
Salvatore "Sam" is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL) was the darling stock of 2012. Over the first 10 months of the year, shares nearly doubled -- a string of impressive earnings reports coupled with hot new product releases catapulted shares over $700. But then something changed: Shares plummeted in the fourth quarter. Hedge funds sold their Apple stock and expectations for the company’s upcoming products were curtailed.
With Apple shares now seemingly range-bound around $450, could new stocks emerge to take its place in the investing universe? Although their businesses are quite different from Apple’s, both AIG (NYSE: AIG) and Google (NASDAQ: GOOG) have shown signs that they might just be the “next Apple.”
Apple is no longer the most popular hedge fund hotel
Not that long ago, Apple was labeled a “hedge fund hotel.” The investing blog Zerohedge pointed out that a record 231 different hedge funds had stakes in Apple back in September. But after the release of last week’s 13F filings, that is no longer the case.
Plenty of funds completely dumped their Apple stakes in the fourth quarter of 2012, including notable funds such as Jana Partners, Leon Cooperman’s Omega Advisors, and Dan Loeb’s Third Point.
Insider Monkey points out that Apple is no longer the most widely held stock among hedge funds. (To be fair, it’s still the third most commonly held, and the most commonly held tech stock.) What company has taken its place as the hedge fund darling? None other than financial giant AIG.
Rather than use their capital to bet on the success of the new iPhone, hedge funds appear to prefer betting on an insurer. As the treasury has now totally sold off its stake, AIG’s flamboyant CEO Bob Benmosche might be able to generate tremendous profits from a recovering global economy.
Hype over Apple’s products seems to have diminished
It probably isn’t a coincidence that Apple’s stock set its all-time high just a few days before the iPhone 5 hit the shelves. Since then, concern has only grown that Apple’s days of product innovation might be behind it.
Just after the release of the iPad Mini, noted Apple bear Jeff Gundlach joked back in November that Apple might be preparing to release a “tooty-fruity” version of the iPad, an iPad available in a variety of different colors. (Gundlach might not be that far from the mark; it’s what Apple did with the iPod toward the end of its dominance.)
Regardless of whether or not that’s actually the case, it seems to be the general perception of a growing number of investors. Is there a different company that could absorb that sort of frenzied hype over its products?
Google has quietly started to become a product company
When it went public in 2004, Google was seen by almost everyone as simply a search engine. A remarkable one, but a search engine nonetheless. But since that time, Google has expanded tremendously, with its most notable new business being its mobile operating system, Android.
With Android, Google has thus far taken on the strategy Microsoft used dominate the PC world in the 1990s -- produce the operating system, let other companies make the hardware.
But then in 2011, Google acquired handset maker Motorola. The company promised to run Motorola as a private subsidiary, claiming to have acquired it strictly for its patent portfolio.
However, Google opted to replace Motorola’s management with its own people. Now, widespread rumors indicate that the company is working directly with its Motorola arm to create the so-called “X phone.”
And Google isn’t content to leave Android to smartphones alone. The company’s “Project Glass” has produced a futuristic pair of glasses capable of allowing the user to experience a form of augmented reality.
There’s also Chromebooks, the Nexus lineup of smartphones and tablets, and perhaps someday in the distant future, self-driving cars. For all these products, Google is rumored to be building a retail operation of its own. Google seems poised to follow Apple in creating products that excite and intrigue the masses.
AIG and Google certainly have had Apple-like performance
Hedge fund ownership and product excitement might be weak grounds for a comparison. But there is one trait both AIG and Google unquestionably share with the Apple of 2012: performance.
AIG’s shares have been remarkable over the last three months, gaining nearly 16%. Google’s performance has been even more impressive, with shares having rallied over 18% since mid-November. (Google just recently set a new all-time high.)
What are investors to do?
If the Apple comparison is truly valid, then there might come a day when investors in these companies should be cautious. Immense product hype and widespread hedge fund ownership could be indicative of a top. After all, there is a limit to how enthralled with something consumers can get before moving on. And, if practically every hedge fund is involved with a stock, there could be few buyers left in the market.
Of course, history never fully repeats itself, and there are many obvious differences between the companies. Still, investors ought to be mindful of investing trends.
joekurtz has no position in any stocks mentioned. The Motley Fool recommends American International Group, Apple, and Google. The Motley Fool owns shares of American International Group, Apple, and Google and has the following options: Long Jan 2014 $25 Calls on American International Group. 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!