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Apple Inc. (AAPL), Google Inc (GOOG), And The Contrarian View

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Whether you view it as a benefit or detriment, momentum plays an integral role in the daily movement of stock prices. As of this writing in April, market participants are discussing the recent sell-off in gold, as demonstrated by the 13% decline in the SPDR Gold Trust (ETF) (NYSEARCA:GLD) that occurred on Friday, April 13 and Monday, April 15. Gold has fallen more than 25% from its all-time closing high of $1,800+ in September 2011, and now bulls and bears alike are revising their 2013 price forecasts on the precious metal.

Apple Inc. (NASDAQ:AAPL)

The unfolding events in the gold market make a great introduction to the ongoing dichotomy in tech giants Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). Throughout 2011 and 2012, Wall Street analysts embarked on a game of catch-up, hastily raising their earnings estimates and price target on the maker of iPhones and iPads as Apple beat expectations quarter-after-quarter. In contrast, Google fell out of favor with the Wall Street community as Apple gained momentum and investors eagerly awaited the Facebook Inc (NASDAQ:FB) IPO.

Fast forward to present date, and investors are looking in the mirror at a reverse image: Apple has made a round-trip from $400 to $700 and back, while Google has risen nearly 60% in the same time frame.

How can readers make the correct investment decision in the midst of yet another change in market sentiment?

Here are four reasons why Google is a relative sell within technology:

Desktop search usage appears to be peaking, as Internet users worldwide transition to mobile devices such as tablets and smartphones. Google Inc (NASDAQ:GOOG)’s dominance in the mobile arena is less secure, as evidenced by a must-read New York Times article which discusses how competitors Apple Inc. (NASDAQ:AAPL) and Amazon are gaining a mobile foothold.

Advertiser revenue declined 1% year-over-year during first quarter 2013 at IgnitionOne, a third party which manages more than $1 billion in annual Google advertising for 500+ clients. The figure is particularly worrisome as the same metric rose at an average 18% during the last 8 quarters (Jan. 2011 – Dec. 2012).

Google Inc (NASDAQ:GOOG)’s earnings mix is shifting towards lower margin areas. The company is introducing an “Enhanced Campaigns” feature during the second half of 2013 in order to offset declining margins. Advertisers will be required to adopt the new standard on a take it or leave it basis, which may cause some customers to defect.

Facebook Home is a credible threat to Google Inc (NASDAQ:GOOG)’s search dominance on the mobile platform. While analysts may downplay Facebook Inc (NASDAQ:FB)’s new initiative, investors should recognize there is no precedence in mobile. Further adoption by users as the “gateway” to your phone could be meaningfully detrimental to Google’s mobile ad revenue.

Here are four reasons why Apple is a relative buy within technology:

Apple Inc. (NASDAQ:AAPL)’s stock trades on prospects for the iPhone and iPad. An iPhone 5S launch is likely during the second half of 2013, and Apple is rumored to introduce the new smartphone in three screen sizes to appeal with a broader audience. With respect to the iPad, CEO Tim Cook recently stated that 50% of iPad buyers in Brazil and China are first time customers. The tablet market is also expected to triple within the next four years.

On April 4, analysts at Lazard Capital initiated coverage of Apple Inc. (NASDAQ:AAPL) with a Buy rating, $540 price target, and stated to clients “the worst is over.” As I alluded to with the introduction, Wall Street was overly euphoric on Apple during the upside swing, and the Street has now reversed course with overwhelming pessimism. At minimum I’m looking for a reversion to the mean.

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