Since Google Is Up, Consider Apple

 | May 24, 2013 | 10:18 AM EDT  | Comments
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FB

Google (GOOG) is on a great run. In the summer of 2011, this was a stock that had dropped below $500. Now it's at $900.

If you're looking back in time for a catalyst, think back to when Facebook's (FB) stock started trading publicly last year. In the lead-up to Facebook's IPO, as the hype grew, Google seemed to weaken. Money seemed to be flowing out of it and into the social network.

Recall that many people were hyping Facebook to be the heir-apparent to Google. It wasn't uncommon to hear back then that Facebook was going to top $100 billion in market cap shortly after its IPO.

Once trading began in Facebook, though, the air got sucked out of the stock. And with every tick down in Facebook's stock, there seemed to be a rebound in Google. And it has never stopped in the year since.

Which brings us to a Google stock that seems pretty fully valued to me.

A year ago, everyone was spooked about Google's ability to deal with the shift to mobile from desktop and the effect that would have on its cost per click. A year ago, Facebook was set to become the shiny new thing for advertisers to allocate budget to, instead of old-school blue-link search results. A year ago, no one was willing to give Google credit for its YouTube business.

Today, all that has changed. Google is getting full credit for everything. There's little to find in the Google story that is not being appreciated and baked into the stock at the moment. Maybe it's still not being appreciated for Glass, its driverless car and Orkut, but that's about it.

Google's forward price-to-earnings multiple is currently 18x. The stock is also reported to be the new favorite stock among hedge funds, having taken the crown from Apple (AAPL) last year.

Isn't it a reversal of fortune that has gone on between Apple and Google in the past 12 months? Google is up more than 40% in the last year while Apple is down more than 20% over the same period. Apple now sports a forward P/E ratio of 9x.

Skepticism rules about Apple's prospects.

"They can't innovate anymore."

"I'm taking a show-me attitude with Tim Cook."

"TV margins are terrible."

"The fact that they're paying a dividend and buying back stock demonstrates that they have no better uses of cash."

Maybe it's the contrarian in me, but it seems like a perfect time to be going long Apple's stock and shorting Google in a pair trade.

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