Google and Apple – Two Stocks to Buy Today

Monday, September 15, 2008
By Faisal Laljee

I am currently on vacation and my Internet connectivity is
intermittent at best. However, I feel compelled to write that I think
Google (GOOG) and Apple (AAPL) are two stocks that should be bought
today.

Google, with it’s Chrome browser has taken a crticial step toward the
application software market. They are looking for the desktop
imterface to be completely replaced by a browser. To that effect,
Chrome has an exceptionally robust, yet simple interface. The limited
testing that I have done myself shows Chrome to be faster and much
more stable than Microsoft’s IE 7, which now holds over 70% of the
browser market, with Firefox a distant second with over 20% and
Apple’s Safari with 6%. While Chrome has a very long way to go, it’s
purpose is to allow businesses to run remote applications via the
browser and run them fast. Conceptually, this design is a stride in
the right direction as more and more enterprise software has moved
from desktops to web-client architecture. So is Chrome my only reason
for recommending Google? Heck no! The stock has almost halved over the
last 12 months and all because advertising has been affected by a weak
economy and Google’s earnings growth is slowing down as evident from
their miss last quarter. I think the 50% decline in Google’s stock
price is unjustified considering it is still number one in search and
despite the slowdown, their earnings are still growing and at a good
pace. The current economic climate will change in a year or so, but
this stock at $400 is a once-in-a-life opportunity. Chrome just gives
you anoter reason to buy it.

Apple – all I can say is that I have always been a PC user. I used to
also work in an academic computing lab some 10 years ago fixing
people’s computers and always thoughtthe mac sucked. However, lately,
I have had the oppotunity to test a mac first hand an I can tell you –
this is the real deal. That Macs will continue to peel away market
share from PC’s is a given. Apple’s stock meanwhile, is down from it’s
all time high of around $200 a few months back. In fact, it is down
some 25%.

I also tested the new 3g iPhone and it is a thing of beauty. I had
been a Palm Treo user for many years before switching to a Motorola Q
this year (a decision I very much regret). I have also been and still
am a big fan of Blackberry (RIMM) but having finally got my had on a
3g iPhone, I do believe that once companies figure out how to male it
work correctly with Microsoft Exchange server, it will me re phone of
choice for corporations.

My estimate is that Apple has already sold over 4 million of these new
iPhones in the first two months and here is why Apple will make more
from these iphones than the previous version:

1) The new phones have a higher level of security built in which will
prevent buyers from unlocking the phones for use with non-authorized
carriers. This means more of these phones will be activated by AT&T
(T), which shares it’s monthly revenue earned from iPhone contracts
with Apple.

2) Open source means a plethora of applications will (and have) hit
the market. Best of all, these applications can only be downloaded via
iTunes and developers will had to pay Apple for every sale of their
product.

Ultimately, the iPhone, the Mac and iTunes are what will drive Apple’s
earnings going forward. Steve Job’s health is an overblown issue and I
think Apple shareholders will be rewarded for their patience soon.

Faisal Laljee
Full disclosure: I own AAPL and RIMM but my position can change
anytime without notice.

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2 Responses to “Google and Apple – Two Stocks to Buy Today”

  1. vvv

    Great post but could yopu explain in more details how exactly GOOG will monetize Chrome and How AAPL will monetize the open sources application in the iphone.

    #595
  2. Faisal Laljee

    For Apple, the average iPhone user downloads about eight apps in the first month of owning the phone. Other smartphones users download less than one application a year. Apple reported more than 10 million downloads in the first week its App Store was open, and most programs sell for less than $10 apiece. Apple makes a cut from the sales of these applications that are developed by third-parties.

    As for the Chrome, it is to Google what IE is to Microsoft and Mozilla is to Firefox. Strategically, Chrome will give Google user browsing patterns that it did not have access to in the past unless users downloaded the Google Toolbar. This will help Google serve contextual advertisements via behavioral targeting.

    #596

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