Apple Stock Is the New Microsoft – Good, But Not Good Enough


Microsoft‘s (NASDAQ:MSFT) earnings, reported after the bell Thursday, were good. But like Apple (NASDAQ:AAPL), they just weren’t good enough.

Microsoft reported a fiscal first-quarter profit of $5.74 billion, or 68 cents per share. That’s up 6% from last year’s $5.4 billion, or 62 cents per share profit. Revenue also was up to $17.4 billion from $16.2 billion, a 7% rise. But “experts” had expected earnings of 68 cents per share, so MSFT stock started to get hit after hours.

Sound familiar? Apple (NASDAQ:AAPL) missed the mark earlier this week, and shares sold off Tuesday as a result. Apple earnings remained strong as usual — net income jumped to $6.62 billion from $4.31 billion, and AAPL stock revenue surged nearly 39% to $28.3 billion. But as investors should know by now, it’s not the numbers that matter, but how those numbers perform against Wall Street forecasts.

In the wake of Microsoft and Apple reporting earnings, it’s worth examining how good companies continue to be sold off because they aren’t “good enough.”

Could Apple Be the Next Microsoft?

Once-dominant tech stock MSFT has been wildly unpopular in recent years. Microsoft’s stock has been languishing in the high $20s for the better part of a decade. And while no one expects Apple to crash from triple digits anytime soon, there are some very real fears lately that AAPL stock could desperately be in need of a second act to stay in favor with investors.

It’s more than a little absurd, I know. The iPhone was Apple’s second act. The iPad was its third. And rumors of an Apple HD TV could very well hint at its fourth. If not the TV, then consider that 93% of Fortune 500 companies are deploying or testing the iPhone for business use — which could be a stunning opportunity for enterprise sales.

But who cares? Apple earnings weren’t as good as they should have been. So the stock sold off.

Microsoft stock watchers should be painfully familiar with this trend. Consider the dead-money performance of Microsoft in the past 10 years despite a strong business that includes:

  • A virtual monopoly, with an approximately 83% market share of computer operating systems.
  • The ascendance of the Xbox 360 video game console and related products like the Kinect.
  • An EPS forecast of almost $3 per share for this fiscal year vs. just $1.62 in fiscal 2009.
  • Some $43 billion in cash and equivalents on its balance sheet, even while maintaining a nearly 3% dividend yield.

Aside from the 2008-09 lows, MSFT stock always seems to bounce back strongly after it has sold down to around the $25 level. Investors might not think this tech stock is sexy, but it’s difficult to ignore the profit potential at those valuations. Heck, even right now MSFT has a forward P/E ratio of 8.7 — before today’s earnings sent shares down after hours.

But Microsoft just never seems to muster the momentum for a breakout. And it seems that even modest growth for an already dominant company isn’t good enough. Everyone has become painfully complacent with the rather impressive business of MSFT, no matter how bulletproof a company it is.

Could the same hold true for Apple? Could $400 be the new floor for a stock that is doomed to flail about for the next few years?

Maybe. This week, a Wall Street analyst at BGC Partners did the unthinkable and downgraded Apple stock to “hold” from “buy.” It seems the scorching run of AAPL stock was just too hot for some to hold onto — even in the face of a dominant gadget business and lots of good things in the pipeline.

Apple is perhaps the biggest secular growth story on Wall Street in the past several years, so it’s hard to bet against this company. But as Microsoft has proven, you don’t have to crash and burn to get a bad reputation with investors. You just have to plod along with the same “boring” level of dominance and success.

There’s a very real risk AAPL could follow MSFT in this regard.

Jeff Reeves is the editor of Write him at, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

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