Apple Inc. (NASDAQ:AAPL) vs. Yahoo (YHOO): Better Trade in 2013?

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1. They support Yahoo over Apple Inc. (NASDAQ:AAPL) mainly because of Yahoo’s recent price momentum. Historically price momentum is a good indicator of short-term performance. However, price momentum isn’t a good indicator when it comes to longer-term.

2. Apple Inc. (NASDAQ:AAPL) trades at a very low forward PE ratio. Some analysts argue that Apple is at its maximum fear point (read the details). Yahoo’s forward PE ratio is close to 18. That’s Google territory. I would rather own Google than Yahoo.

3. Apple Inc. (NASDAQ:AAPL) can deliver strong returns if it can maintain its profitability because the markets priced in a decline in the company’s earnings. Yahoo needs to grow in double digit rates to match its expectations. If the economy takes a turn for the worse, Yahoo will probably be the loser.

I am a long-term investor and investing in Yahoo scares me. Investing in Apple Inc. (NASDAQ:AAPL) scares me too but the company’s low earnings multiples, strong cash position, and modest dividend provide some comfort.

Disclosure: I have long positions in Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG).

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