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$600 Google Stock Means $400 Apple Stock

Irrational market underpricing AAPL


I was not kidding when I said owning Apple (NASDAQ:AAPL) stock at $300 was the equivalent of free money. Within a market of uncertainty and volatility there was no better investment to make than to buy Apple stock at those ridiculously low levels.

Yesterday’s blowout earnings report from Google (NASDAQ:GOOG) reinforces the buy Apple theme. It may seem amazing that a stock with a market cap well over $100 billion can move 12% higher in one fell swoop, but the news should not be surprising.

These large tech companies are exploiting the market in a major way and that is fantastic news for investors. In the case of Google the company owns search and as a result can charge pretty much whatever it wants for those businesses interested in capturing the most attention.

Despite an economic soft patch Google generated a profit excluding certain items of $8.74 per share. The average analyst estimate was for the company to make $7.84 excluding items. That kind of outperformance is worth every penny of premium investors give the stock.

Oh, wait — the market was pricing Google before this report without any sort of premium. The valuation was incredibly low with shares down double digits for the year before the report. Are you kidding me?

In the days of the nosebleed valuations Google stock would be trading for $1,000 per share or more easily and without any sort of question. Prior to the release of earnings GOOG stock traded for a 15 multiple of estimated earnings for the current year. The stock was a screaming buy in advance of earnings.

A multiple of 30 or more would be more appropriate. That would net you a price of $1,000 for Google.

What does all this mean for Apple and AAPL stock?

It means a ton of course. Helping to fuel profits at Google were android phone sales. This smart phone thing that Apple started is huge. No way are analysts hitting the estimates with respect to Apple’s earnings.

They missed horribly in the prior to quarters and based on Google’s results they are likely to miss wildly again. Investors are finally cluing in. Shares of AAPL stock are up to $360 and climbing.

I expect them to climb higher when the company reports earnings next week. Currently the average Wall Street estimate for Apple is $5.73 per share.  That number is a few pennies higher than a week ago and only thirteen cents higher than 60 days ago.

Boy those Wall Street analysts are really going out on a limb, NOT! Apple beat estimates by a dollar per share in each of the last two quarters. These penny moves higher with estimates are a joke. Thankfully the market takes the joke seriously and prices the stock based on the estimate.

That’s why when a company beats estimates shares can zoom higher in one day as is happening with Google.

My sense is that investors have not bid up shares of Google or Apple stock because of some strange fear of high priced stocks. Both Apple and Google stock trade for big dollar amounts, but that is not the same as trading at a high valuation.

You should take advantage of the irrationality and own Apple before it too jumps to the next threshold. In this case that would be $400.

Article printed from InvestorPlace Media,

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