by Lawrence Meyers | January 9, 2014 9:52 am
Like many investors, I’ve watched Google (GOOG), Amazon (AMZN), and Apple (AAPL) provide great returns for long term investors.
I’ve never been able to pull the trigger on these big tech stocks because their momentum and volatility always concerned me. However, I considered each of these big money stocks carefully over the holiday and have decided to go long in each of them for my diversified portfolio.
What’s so great about these big tech stocks that made me change my mind? Here’s a brief outline of why I chose each.
I’ve been concerned about Tim Cook’s stewardship of Apple, but the truth is that the company continues to make products people not only want, but love. And that’s great news for AAPL stock.
Everyone I know has an iPhone — even if Android dominates the market, there are still plenty of iOS devices out there. And I didn’t think the company could go beyond the iPad, but now we have the iPad Air. AAPL went from being the ugly stepsister to being the next “must have” product. I want to be with innovators.
AAPL has $140 billion in net cash and investments or $144 per share, giving it an effective trading price of $400. Although EPS is slated to grow 10% for the next couple of years, analysts have long-term growth at 14.3%, and AAPL stock trades on 2014 earnings at a P/E of 9.5, so it is also fairly valued.
As for Amazon (AMZN), royalty among big tech stocks, it has become the online go-to retailer for just about everything. 95% of my shopping — storefront or internet — is done on AMZN.
AMZN reported that, on Cyber Monday, 426 items were ordered globally … per second. Those kinds of numbers have to strike fear into the big-box retailers who struggled over the holidays. Meanwhile, the company’s Prime service continues to gain momentum. And as with Costco (COST), any model that generates revenues from subscription fees is gold for the company.
I can’t value Amazon on a traditional basis because it is constantly in flux, constantly developing and innovating. But it has Jeff Bezos, and that’s enough for me.
Somehow, Google gradually replaced Yahoo! (YHOO) as my go-to search engine, as I think it did for the majority of computer users, making it one of the most dominant big tech stocks out there. GOOG dominates the search market, handling 2 of every 3 searches. As Google has grown, advertisers began to allocate more and more of their budgets to the internet.
Google’s ownership of search, and advertisers’ need to spend and their increase in internet budgeting, has been the core driver of Google’s business model. In the meantime, GOOG dabbles in other spaces, acting as a de-facto incubator for other potential businesses and revenue generators. Google is the present and the future.
When it comes to big tech stocks, I want to be with the innovators, and Google defines what innovation is and will be. With more than $58 billion in cash and investments, and only $2.2 billion in debt, that translates to about $168 per share in cash, giving GOOG stock an effective trading price of $950. The company is slated to earn $52.18 in 2014, so it trades at a forward P/E of 18.2. Analysts have long-term growth pegged at about 15%, and the company’s FCF continually increases year over year. I think GOOG stock is a good buy here, and not overvalued.
Lawrence Meyers does not presently own any security mentioned, but intends to open long positions in AAPL, GOOG and AMZN in the next thirty days.
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