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Race to $1,000: Will Google Beat Apple Stock?

Everybody has been watching Apple (NASDAQ:AAPL) lately, and with good reason. The iPhone 5 launch, the Foxconn nastiness … lots of headlines.

But what you might not have noticed is that rival Google (NASDAQ:GOOG) has been on a roll for the past month (up almost 13% as of this writing) while Apple stock is flat.

And while Apple stock briefly claimed the $700 mark before rolling back, Google has been above $700 since mid-September — and has stayed there.

So it begs the clicky, hyped-up question … who will make it to $1,000 first?

I admit, I’m just sucking you in with that headline. But trust me, the underlying discussion is worth having — namely, whether Apple can continue to keep up its growth or whether Google and Android will beat the tech icon at its own game with a new crop of mobile devices.

Let’s take a look at the pros on both sides of this Apple-Google fight:

Apple

iConic: Nobody does gadgets like Apple. The iPhone and iPad have literally revolutionized the world, from how we access media to what we expect of our personal electronics. Heck, Apple has spawned a whole ecosystem of related businesses because the devices were so impactful. There’s always the risk of technological disruption, but Apple seems secure in the short-term — especially with the iPad, which is a long way from critical mass.

Well-Oiled Profit Machine: Apple might have a bad reputation with some folks because of its 30% cut on everything that goes through the iTunes marketplace or App Store. But hey, to the victor goes the spoils. The sheer scale and dominance of Apple allows it to play hardball with consumers and businesses alike on pricing. Take the mammoth iPhone margins, for example — while Apple has around a 9% smartphone market share globally, it sucks up 75% of the global profits! The revenue per employee at this shop is $2.3 million, for Pete’s sake …

Cash King: A lot of tech stocks have a nice war chest, and Google is no slouch, with $43 billion in cash and short-term investments and another $1 billion in long-term investments as of the end of Q2. But Apple has almost three times that total — with almost $28 billion in cash and short-term investments, and a staggering $90 billion in long-term investments! Not only does Apple have the money to figure things out if the going got rough, it has the war chest to make a bidding war quickly slant in its favor should push come to shove with Apple stock.

Sex Appeal: Google is great, but how many Google headlines have you seen on investing sites in the past month or two? How many reports of Google rumors? How many Google fan blogs do you read? Yeah, I thought so … Heck, there’s even a yahoo analyst who has a $1,111 target on Apple stock as we speak! You don’t get more trendy than that.

The Math: Apple is forecast to earn $52.25 a share in 2013. At $1,000 per share, the P/E would be 19.1 — rich, but not outside the realm of possibility. And its 2014 earnings are predicted to be $62. That would be just 16.1 on a price-to-earnings basis. Seems not just possible, but probable that Apple stock will get there eventually. The downside: At $1,000 a share, the market cap of Apple would be close to $935 billion. Yowza.

Google

Android Diversity: The power of Google is that, while it did buy Motorola, is that it allows anyone and everyone to play with its operating system. That’s why it powers the Kindle from Amazon (NASDAQ:AMZN) as well as smartphones from Samsung. Apple has a long history of being a control freak about its stuff, and Google could do to Apple’s smartphones what Microsoft (NASDAQ:MSFT) did to Apple in the early days of the personal computing wars — leverage the scale and brainpower of partners to dominate. There are trade-offs in the form of profitability and a more buggy user experience … but there are clear benefits, too, that come in the form of diversification.

Stability in Search and Advertising: Let’s not forget that while Android is flashy, the whole online advertising game is highly profitable for Google. It actually has just topped Facebook (NASDAQ:FB) in display ads, by most estimates. It’s a virtual monopoly in search, too, and rumors that Yahoo! (NASDAQ:YHOO) might ditch Microsoft and its Bing search now that Marissa Meyer is at the helm would tighten the company’s grip domestically even more. Clearly Android is great, but it’s not the only thing for this company that’s working.

Uber Innovation: I know Apple is innovative, since the iPhone and iPod and iPad were all revolutionary gadgets. But they still were just gadgets. Consider that Google does anything it feels like and often comes out a winner. That’s how Android was even born in the first place — because the company allowed its engineers to think big. And that’s why Google is playing with a fiber optic network in Kansas and web-browsing glasses. There are levels of innovation and creativity, and Google is at the top of the heap, in my estimation.

Dividend Bounce: I know, we all thought Apple would never pay a dividend. But it has. And thanks to expanding dividends elsewhere in tech and movement at other giants like Cisco (NASDAQ:CSCO), it seems likely Google will get into the dividend game soon. That could result in even more buying pressure for the shares.

The Math: Google is forecast to earn $43 a share in 2013. At $1,000 a share, the P/E would be 23.2 — again, rich, but not outside the realm of possibility. Now consider a longer view, where Google earns $51.60 a share in 2014 (a 20% increase; very doable considering earnings have tripled since 2008). That would require a P/E of 19.3. Hardly an Amazon-esque nosebleed. GOOG also would have equity value of about $325 billion, which while outsized is not something that could freak out the markets or the indices by being unwieldy.

The Verdict

So who will get there first? Well, it should be no surprise to anyone who reads my disclosures, but I come down firmly on the side of Apple. I personally own the stock precisely because I believe there is a heck of a lot of upside from here.

Practically speaking, the math works better on a price-to-earnings basis for Apple. Also, while Google might somehow wind up with a higher multiple or see its forecast jump for 2014, the same can be said just as readily about Apple.

To be clear, I am not a silly fanboy who thinks Apple will hit this figure anytime soon. There’s a lot riding on the iPhone 5, and there’s even more riding on Apple’s long-term plan to become more than just an also-ran in China. I will be watching the next quarter particularly closely, even though I remain optimistic.

And while Google has been doing well lately, it remains to be seen whether it can (or even wants to) become more Apple-like now that it owns Motorola. At minimum, it agreed to keep the Android OS open source until 2017. Getting into mobile hardware seems like the pipe dream of every tech stock since Apple has been minting money for the last few years, but we will have to wait a long time after the October launch of the RAZR I to see how this is going to shake out. That’s not to say Google won’t see growth or eventually have its own highly profitable hardware pipeline … but that day remains a long way off to me.

At any rate, I like both stocks a lot. I just happen to like Apple better.

What do you think? Why do you like or dislike the prospects of either company?

Remember, this “first to $1,000” game is just a jumping-off point for a long-term discussion of these picks. After all, Berkshire Hathaway (NYSE:BRK.B) technically already did the four-figure thing before its B shares split 50:1 in 2010. And it could be that other pricey picks like Intuitive Surgical (NASDAQ:ISRG) or Priceline.com (NASDAQ:PCLN) beat Apple and Google to that $1,000 mark first.

Further reading:

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple.

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Comments
  • Joe

    Steve Jobs died. Apple’s long term prospects died with him. Either sell Apple now, or hold on as long as you dare and hope you get out before everyone else realises that Apples had nothing to offer now Jobs is gone.

    • Me Ted

      Case in point. They’ve had zero innovation since the launch of the iPhone 4. Higher resolution screens and pretty hw is not innovation. In fact I would argue that Android has been far more innovative. Apple has run out of ideas and is desperately playing catch up to Android and Google in general.

  • horace


    That’s how Android was even born in the first place — because the company allowed its engineers to think big.” Um, Google bought Android…from Andy Rubin.

    • http://twitter.com/JeffReevesIP Jeff Reeves

      Technically true, but that deal was in August 2005. First incarnation of Android OS wasn’t released until late 2008 and obviously has evolved big in recent years. To say Google “bought” it implies this was like FB and Instagram, with a fully-formed business that was just rolled in. Not exactly fair.

  • John Weissman

    I also think Apple is the “winner”, but more because Google does things half-ass, IMO, leaves products unfinished, or as forever works-in-progress, “not ready for prime time”–and, absent true competition, Google gets away with it. Thanks for the well writ article!

    • Guest

      Not to mention that few, if any of google innovations have yeilded shareholder values. consumers don’t talk about Google as best in class experience, and are far from leader (exception: search, of course). Apple products – including iPhone 5 – have a demand and aspiration beyond Android. Also, as far as brand recognition goes people want Galaxy-III not Android phone.

  • Dave

    OK, I’m interested. DHinUT

  • Guest

    none of Google’s pure innovation has yeilded shareholder values. Android

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