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

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

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!