Apple Inc. (NASDAQ:AAPL) outperformed Yahoo! (YHOO) in 2013 by 8 percentage points. Both Apple Inc. (NASDAQ:AAPL) and Yahoo (NASDAQ:YHOO) did substantially better than the market. Which stock is a better trade in 2013? The talking heads on CNBC’s Fast Money answered this question as follows:
Guy: “You know, Yahoo!, right around 20 bucks, a new high today, a name we’ve talked about for a long time. I think in percentage terms and I can only go out for the next couple months, I think Yahoo! is going to be the big winner. I don’t discount the move Apple had today. I understand valuations are compelling. If you want beta for this year, I think Yahoo! is the stock.”
Second Panelist: “You probably have a trading opportunity here in Apple. I think that’s what you’re going to have here. People are going to get back in, they are going to get excited about the Apple TV. I’m with Guy on this one. I think Yahoo! has more the element to surprise over 2013 than Apple does. We kind of know what Apple is going to do. Yahoo! seems to be gaining momentum. So, I put my money there for the year.”
Third Panelist: “I would be a player of Yahoo!. It’s a technical play. It runs into a little bit of choppy waters around $21.50, so, just be careful. You are going to get your chance in Yahoo!. If it trades below $19, that’s where you exit the trade and look for 18 handle.”
So, all three panelists think Yahoo will outperform Apple Inc. (NASDAQ:AAPL) in 2013. Guy Adami thinks Yahoo! Inc (NASDAQ:YHOO) will be the “big” winner. Here is why I think they are all wrong:
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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