Apple Inc. (AAPL), American International Group Inc (AIG): Technology Stocks Versus Financial Stocks

Page 1 of 2

When I think of comparing the tech sector to the financial sector it is laughable. It’s like the east versus the west. When you think of Wall Street banks you imagine skyscrapers with a bank logo slapped on top of it. Technology companies bring up images of University campuses with a Collegiate feeling to them. The culture of Wall Street and Silicon Valley are so different it’s almost as if the two are separated by the Pacific Ocean from each other.

Despite that difference in culture, let’s just say both financials and technology stock exhibit one common characteristic, volatility.

Comparing the stock performance of financials versus technology

Source: YCharts

The data goes as far back to December 1998. Technology stocks were off to an extremely strong start in the December of 1998 as they appreciated by 100% by 2000 to 2001 before crashing into a dumpster pit. The technology wizards fell from stardom.

Fast forward to 2007, and you see the innovative financial wizards on Wall Street soaking up all the lime light. In a matter of two years, the financial sector goes from generating a 60% yield over the course of ten years to generating a -50% yield in the same period. Geez, that’s some serious volatility. Anyone who had invested cash into banks 14 years ago would have lost 20% of their capital. Likewise, anyone who had invested into a basket of tech stocks would have lost 3.20% over the same period. Meanwhile, the gross domestic product grew by 77.35% over the same period. The “high-growth” industries wound up losing the most money for investors in a period of economic growth.

Bullish case for technology and financials

I believe that the worst is behind us in both the financial and technology sector. Investors should look for value plays that may offer substantial value arbitration opportunities. Stocks like Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) trade at exceedingly reasonable valuations relative to future growth. Other names in the financial sector like Goldman Sachs Group, Inc. (NYSE:GS), American International Group Inc (NYSE:AIG), and JPMorgan Chase & Co. (NYSE:JPM) offer compelling opportunities for investors looking for a short-term bargain.

After the dot-com boom and the stock market crash, the best value opportunities have been found in technology and financials. The reasoning is that these stocks have been avoided by Wall Street as being too risky, or difficult to understand. The high beta makes it difficult to justify adding these stocks as they could implode for whatever reason. Anything small to big could cause these stocks to go up and down the emotional joy-ride of volatility, most investors hate volatility and want predictable, safe, long-term growth.

Value opportunities in technology and financials

Source: YCharts

The above figures show that the P/E multiple valuations range broadly, but upon closer examination each individual company is undervalued relative to growth or based purely on the balance sheet factors.

Apple has substantial growth potential

Apple Inc. (NASDAQ:AAPL) is heavily undervalued. The company’s P/E multiple is extremely low at 10.48. Apple’s products will most likely reach broader market appeal in China as Apple is going to release a lower-priced iPhone aimed at capturing a larger percentage of the market. IDC estimates that the smart phone market will be 1.4 billion units with a lot of those unit figures coming from China. In order for Apple Inc. (NASDAQ:AAPL) to compete in the China smart phone market, Apple must sell its products in the $100-$300 range in order to become more competitive. Apple’s primary growth strategy going forward is the iPhone 5 refresh, foreign markets, and the iPad. Tablet sales are projected to be three times as large by 2016 according to Gartner.

Analysts on a consensus basis anticipate Apple Inc. (NASDAQ:AAPL) to grow its earnings by 20% on average over the next 5-years. 10.48 earnings multiple is cheap, and with a $60B share buy-back program coming into play, the stock should be able to stage a strong come-back in valuation.

AIG turnaround

It seems that American International Group Inc (NYSE:AIG) is trading at an extremely high valuation with an earnings multiple of 27.70. Everyone should be suspicious of AIG’s high valuation. However, the company’s management team has been able to grow earnings at rates that were well above analyst estimates with earnings growth averaging 124.9% above forecasts in the past four quarters. AIG reported a $2B loss due to hurricane Sandy. Assuming AIG is able to avoid a hurricane, American International Group Inc (NYSE:AIG) could potentially earn a higher amount of net income for the current fiscal year. The company’s forward P/E multiple is 12 implying that the stock could be highly undervalued. Analysts on a consensus basis anticipate the company to grow earnings by 12% on average over the next 5-years.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!