Tech Check

Your Thoughts on Google and Apple

Needless to say, my posts on Google and Apple are generating a flood of response from many of you feeling the frustration of these steep declines, so in the vein of "misery loves company," here's a taste of some of your missives.

Rest assured, if you're confused, you're not alone: I'm talking to a number of the professionals feeling the same things. Many are preaching patience; some are beating the buy-low drum; but all are watching traders replacing investors and its an uncomfortable trend to say the least.

Kevin writes in: "I own both Google and Apple and all I can say is is I'm feeling a lot of pain. As you pointed out, GOOG was a $747 stock less than six months ago. I bought it at an average basis of about $520 and now it's dropped off a cliff even from that level. Similar thing with AAPL. I sure hope you are right about GOOG recovering a year from now. How do you see the news about Google's decline in paid clicks this morning that is clobbering the stock right now? Is GOOG's fundamentals changing for the worse?"

Excellent questions, Kevin. Look, you have to come to terms with the "law of large numbers." No way Google can keep its growth rate at this pace. Just not gonna happen. That said, the sell-off in Google shares just does not equal the drop-off in paid clicks. It seems way over done. The fact is, Google's growth, even if it slows, is still phenomenal. It's margins are phenomenal. It's outlook is phenomenal. The company is not sitting still. It's forward P/E is only 18 now. 18! Way over done.

Colin writes, "Regarding Apple, the recent fall is not without precedent but it is certainly without reason...With an overwhelming total debt number less than uno, a forward P/E of roughly 18, and nearly $3 billion in levered free cash flow, any entry point in the $100 - $115 dollar per share range is highway robbery...As for Google, all they did in 2007 was increase the bottom line by 37 percent, their revenue by roughly 50 percent, not to mention leveraging another overwhelming debt figure of zero."

Michael from Auburn, Massachusetts writes of Google: "You have a great company that trades at a lower P/E than Baidu , eBay , Yahoo and Amazon and many more. It is still growing faster than most internet companies and is a household name...It seems that many have no long term view and have contempt for this company...Talk about cheap. I don't get it."

Mark writes: "Thank you for providing some measure of balance regarding Apple. It's really getting punished. Perhaps it need to pull back, but this much? Last year at this time, there was no phone, no movie rentals and the Mac market share wasn't nearly as high...Just doesn't add up."

Fred owns both stocks and has been "feeling the pain lately." He says, "What you have to realize though is that the market is dominated now by hedge funds that can short attack any stock and drive it down to the capitulation stage where investors throw in the towel and run for the exits." What? Are you suggesting market manipulation? For shame. (Kidding.)

Regular contributor Robert writes: "How does Apple sell 20 million songs on Christmas Day if they're no longer relevant? And we were reportedly in a recession at the time. Amazing."

Brian says, "What is happening to Google right now has nothing to do with the company itself. It all has to do with momentum and fear. Fear turns to panic and what you are seeing this week is panic from week Google shareholders. Panic is a trigger for weak investors to sell. Panic is a trigger for strong investors to buy." We'll see.

Steve says, "I don't really think that Google has lost its swagger. My reason for saying so is that they don't hang their hat on their stock price, but rather on how much better their product is than everyone else's."

Finally, from Craig: "GOOG reminds me of a bad hangover. You can lay around the next day hoping you're going to turn the corner but the only thing that makes it happen is a session of shouting at the toilet. Perhaps that's what's going on with the stock right now." Nice image, but GOOG and the toilet seem to go hand in hand right now. For how long is the bigger question.

Keep writing, and I'll keep posting. Lots more to get to. This was only a taste. Just keep telling yourself: fundamentals, fundamentals, fundamentals. Buy low. Sell high. There are reasons those axioms have become trite clichés. It's because they've stood the test of time. Now's the time to keep those clichés in mind.

Questions?  Comments?