Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Google’s New Strategy to Battle Apple

Friday, May 18th, 2012
By for Profit Confidential

 technology stocksTechnology stocks are in a constant battle for the wallets of consumers in the retail sector. The ecosystem built by Apple Inc. (NASDAQ/AAPL) through its “iOS” (operating system) has been a huge favorite with consumers in the retail sector. This uniform operating system is important for technology stocks, as it provides a consistent experience for consumers. Since the retail sector is so finicky, this consistent experience has generated a lot of support for Apple’s products.

More control over an operating system is important for technology stocks. This allows them to update the software and implement new features as they want, not the whims of other companies. This is what Google Inc. (NASDAQ/GOOG) is attempting to do with its new strategy regarding its “Android” operating system. Previously only one handset-maker had early access to the Android software. Google will now work with several handset-makers to release the same operating system on multiple devices. This synchronization of uniform software experiences should help the firm in the retail sector.

This attempt to offer the best operating system all at once is also an effort to gain more market share in the tablet space that Apple is dominating. Technology stocks tend to follow one another when they see something working. The dominance in the retail sector by Apple is bound to bring more competitors that will emulate what that firm is doing. Google already is making progress in other parts of the business, as I outlined in the article, Can Google Overcome Potential Pitfalls?

retail sector

Chart courtesy of www.StockCharts.com

Technology stocks have had a strong move from the lows last fall. Not all technology stocks are alike, of course, so studying the chart of each one gives you a better picture of what the investor sentiment is. Following the wide range from the October low until the peak in early 2012, the stock has been forming a giant wedge. This is a sign that neither the bulls nor bears are in control, but at some point one side will become exhausted and the next leg will begin. One positive sign is that technology stocks and the market overall have sold off quite hard recently, but Google has moved up very strongly. Anytime a stock moves against its market sector, this is quite significant to other technology stocks. The upper bar represents resistance and, if Google can exceed this level, it would be a very positive sign.

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I think a lot of positive momentum has been building due to the initial public offering (IPO) of Facebook, Inc. (NASDAQ/FB). Many investors compare technology stocks to each other. When comparing the valuation of technology stocks, investors are looking at Google against Facebook, it’s quite apparent that: a) Google is very cheap; b) Facebook is very expensive; or c) a combination of both. Frankly, at current valuations, Google is far cheaper than Facebook and I think that’s what’s been pushing up the stock.

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Sasha Cekerevac - Investment Advisor, Fund AnalyzerSasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. Add Sasha Cekerevac to your Google+ circles