As the NASDAQ continues soaring to new heights and investors look to flashy new technology stocks, they risk missing huge gains by two proven winners: Google Inc. (NASDAQ/GOOG) and Apple Inc. (NASDAQ/AAPL).
The two titans of technology are generally assumed to be mature companies, having already made huge runs in the past. But don’t count them out yet.
Google Inc. (NASDAQ/GOOG)
Google’s stock price has traveled a winding road over the last decade. And although it’s up only four percent year-to-date, the company could ignite new growth by diversifying its hardware offerings.
The internet giant is starting to tie physical goods to its service products as a way of defending its market share. If you increase the cost of switching to a competitor, customers are less likely to leave.
By purchasing Nest Inc. for $3.2 billion last year, Google took a firm step into the consumer electronics market. Nest’s signature product is a smart thermostat that helps customers reduce their monthly energy bill. On Wednesday, June 17, the subsidiary unveiled a new product line that includes a Wi-Fi-connected security camera and an emergency alarm system. (Source: Forbes, June 17, 2015.)
Consumers can now control the full suite of products using the Nest app, available on both Android and iOS platforms. And as an added bonus, some insurance providers will offer Nest users a discount on their premiums.
The Nest acquisition dovetails nicely with Google’s new SIM card that is only available on the Nexus 6 phone. It allows consumers unlimited calls and texting for a mere $20.00 a month, with each gigabyte of data adding another $10.00 to the plan. (Source: Project Fi, last accessed June 23, 2015.)
This strategy, of linking a service with a hardware product, has proven successful time and again. Amazon.com Inc. did it by pairing its e-book service with the Kindle. Bloomberg LP makes most of its profit by tying together business intelligence with its Bloomberg Terminal. The service side brings customers in, but the hardware side is what keeps them there.
Apple Inc. (NASDAQ/AAPL)
Despite being one of the largest companies on the planet, Apple is still underrated. The company has a price-to-earnings (P/E) ratio of 15.82, well below the industry ratio of 18.30. (Source: Yahoo Finance, June 23, 2015.)
By itself, the earnings multiple is neither here nor there. But it’s interesting in light of two things: the Apple Watch and Fitbit Inc.’s (NYSE/FIT) recent IPO.
Premiering on the New York Stock Exchange last week, Fitbit saw its stock skyrocket to $40.38 per share from a target range of $17.00 to $19.00 per share. The company specializes in wearable fitness tracking technology. (Source: The Wall Street Journal, June 23, 2015.)
Investors are clearly bullish on the intersection of health and technology. They are betting that heightened demand for data will collide with an upswing in health and fitness. But why is their money flowing to Fitbit instead of Apple?
Sure, Fitbit has a major portion of market share, but they are not invulnerable. There is little to distinguish their product line from competitors, whereas Apple can offer integration with its other devices.
As an investor, I look for a company’s ability to defend its market share. Within the wearable technology space, Apple can differentiate their products from competitors and offer them more, so I see them winning that market.