Apple Inc. , Google Inc look oversold after last week’s broad market pull-back. And both these stocks are top “buy candidates,” according to a report by Morgan Stanley. The brokerage firm named the two tech giants among 25 other stocks it says are “being oversold after the recent market volatility.”
“We can’t point to a specific reason the market fell. Our view is this is a buying opportunity,” Adam Parker, Chief US Equity Strategist, wrote to clients on Friday.
Apple Chinese Concerns Over-Blown
Apple Inc. shares are down 15 percent over the past three months. This compares to an 8 percent dip in the Dow Jones Industrial Average. The relative under-performance was largely on account of concerns relating to decelerating iPhone sales and the big exposure to China.
Apple Inc. derives more than 16 percent of its total revenue from the Greater China region. It is continually increasing its investment in the country. Last quarter, the iPhone maker recorded a more than doubling of y-o-y revenue from the region to $13.23 billion. However sales were down from $16.8 billion from the prior quarter.
Investor concerns about Apple Inc. ’s growing exposure to trouble-torn China prompted CEO Tim Cook to release a rare mid-quarter update last week, touting the firm’s continued progress in the region.
“Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks,” Cook said in the personal email to Jim Cramer.
Earlier in July, Cook had reiterated that the economic uncertainty in China had not changed the firm’s strategy. He also unveiled plans to reach a target of 40 retail stores in the country by the end of next fiscal.
Greater Corporate Transparency Good for Google
Google Inc ’s sustained cost cutting efforts are beginning to pay dividends. This, combined with increased monetization of YouTube and mobile search, should give a fillip to the stock. It currently has a 91 percent share of the global search market. And the net cash balance is also huge at $61 billion. Both these should shield the firm from any immediate economic headwinds. Also, Google’s core advertising segment remains highly profitable, which is another big plus.
Greater transparency should help investors’ better compare the sales growth trajectory of the firm’s mature versus emerging segments. The new corporate structure will also provides a way by which more of Google Inc ’s senior executives will be able to move into newer roles. This, in turn, should help prevent further talent loss.
Shares of Google Inc closed Friday at $630.38. They are still up 19 percent over the past three months.