Buy Apple, Sell Google; Hedge of Year or Ticket to Poor House? (AAPL) (GOOG)

March 11, 2013 12:05 PM EDT
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Price: $120.16 +0.13%

Rating Summary:
    60 Buy, 10 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 11 | Down: 22 | New: 54
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Recently a number of analysts raised Google's (Nasdaq: GOOG) price target and there is plenty of fanfare and talk about Google stock eventually capturing $1000. In the view of analysts at Oracle Investments, optimism is misguided and investors betting on the stock are going to get hurt.

"We have seen this movie before (Apple at all time highs) and we know how it ends," said Oracle analyst Laurence Isaac Balter. "With a PEG Ratio of 1.20 it's trading at a premium to its growth rate, whereas Apple's PEG ratio is just 0.55x (the 5th lowest in the entire S&P 500)."

Additionally, Balter pointed out that over the past 5 years GOOG has been compounding retained earnings at only 6.74 percent, whereas Apple has been nearly double that at 11.88 percent.

Interestingly, Oracle has a Sell rating on Google and a Strong Buy rating on Apple (Nasdaq: AAPL), which if taken together would create a powerful pairs trade. But betting Apple will outperform vs. Google is not a trade for the faint of heart. Momentum clearly does not favor Apple. It is lower by nearly 35 percent in just six months. Meanwhile Google is higher by 20 percent.

For traders comfortable predicting tops and bottoms, Oracle's call is probably a compelling one. For those who are adverse to catching falling knives or standing in front of locomotives, it is probably not the most loved idea floating around.

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