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

Competitor Samsung’s emphasis on software with the new Galaxy S4 indicates that hardware improvements are diminishing. Apple Inc. (NASDAQ:AAPL) maintains the best-in-class software among its class of devices. Wall Street will eventually realize that software is becoming the distinguishing factor among smartphone makers, playing to Apple’s strength.

Analysts believe a potential dividend raise by Apple’s board of directors could attract a new class of income investors. The company has not increased its dividend since first introducing a $2.65 quarterly payout, leading some to speculate when an announcement could be made.

Does Facebook fit into the Apple/Google equation?

Facebook Inc (NASDAQ:FB) is scheduled to release first quarter 2013 results after the market close on Wednesday, May 1.

Analysts have lowered their earnings estimates for Facebook ahead of the upcoming release. Wall Street believes that an increased percentage of mobile visits to the social media giant will have a revenue impact on January – March results. Furthermore, I believe full-year 2013 and 2014 forecasts for Facebook Inc (NASDAQ:FB) are subject to downward revision based on the same logic. As of this writing, analysts have left their original numbers intact.

Facebook recently announced the launch of Facebook Home on Google Inc (NASDAQ:GOOG)’s Android platform, which could further catalyze the transition of desktop usage towards mobile. In addition to Android, Facebook updated its Apple Inc. (NASDAQ:AAPL) iPhone application to version 6.0 with the inclusion of “Chat heads,” an innovative feature which allows users to chat with friends throughout the application. All in all, these feature improvements will continue to drive the growth of the mobile platform over desktop–a negative for Facebook shareholders.

Finally, industry experts are speculating that Twitter, the 140 character messaging service, could be gearing up for a 2014 initial public offering. This anticipated event could cause investor dollars to shift away from Facebook, similar to how the former attracted investor dollars away from Google Inc (NASDAQ:GOOG) during 2011.

I do not recommend that readers invest in Facebook based on the reasons above.

Foolish Bottom Line

Truth be told, I could fill a room with Wall Street analysts who believe that Apple’s best days are behind and Google’s rise to dominance is here to stay. However, my experience indicates now is the right time to be a contrarian investor. As a former associate at an equity research firm, I’ve seen Wall Street repeatedly play the momentum game of stock market, ebbing and flowing like the ocean tide.

The valuation disparity between Apple and Google has become extreme, and I expect improved fundamentals and a reversion to the mean will put the wind behind the backs of Apple investors once more. Google currently trades at nearly 24x price-to-earnings, while Apple trades at a paltry multiple of 9x earnings.

Investors may experience an initial change in sentiment as soon as Tuesday, April 23 following Apple’s second quarter results.Thanks for reading, and consider subscribing to my posts for more Foolish ideas on outperforming the market.

The article The Contrarian View: Four Reasons to Sell Google and Buy Apple originally appeared on is written by John Macris.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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