The valuation gap between Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) is the widest its been in almost a decade according to Bloomberg.com. This suggests that Apple could be cheap at recent prices. While Apple Inc. (NASDAQ:AAPL) is still the world’s largest company, is its share price decline enough to make it a buy?
One-Trick Pony
Apple is a great company, but is, at its core, a one-trick pony. It makes and sells electronics. While the current collection of iPhones and iPads were game changing devices when they first hit the market, others have deftly copied the innovations.
Thus, competition is heating up notably. This leaves Apple Inc. (NASDAQ:AAPL) with two avenues for growth. It can continue to bring out amazing new gadgets or find a new source of customers. It is working hard on both front, but its future literally depends on success.
On the innovation front, the rumors are for a better TV product and/or a watch. If that is the pipeline, the company may be at a crossroads on the product front. Customer wise, Apple is looking to create cheaper versions of core products like the iPhone to reach lower down the customer ladder and to expand in foreign markets like China. These efforts probably have more potential to support growth. At least over the near term, anyway.
Better Positioned
Google, which is hitting new highs as Apple Inc. (NASDAQ:AAPL)’s shares falter, has positioned itself better. The company’s focus on advertising instead of product has allowed it to become a key player in many of the fastest growing markets. Most notably mobile, where its Android operating system is the world’s leader.
Mobile isn’t the only pie in which the company has its fingers, either. It is a leader in video and search, and has initiatives that are putting a fire under its competitors, like its online office productivity suite that competes directly with Microsoft Corporation (NASDAQ:MSFT).
Poisoning the Well
Google’s aspirations, however, could be poisoning that well. Part of the reason that so many companies have been willing to partner with Google is because it was a partner, not a competitive threat. That status could be under fire with the company’s purchase of Motorola Mobility.
Indeed, Samsung and its highly popular Galaxy line of smart phones and tablet computers uses Android. If Google starts competing in the same space, Samsung would be foolish to rely so heavily on a competitor. That could open up a vital toehold for Microsoft in the mobile operating system space.
In fact, the technology giant has been pushing hard to gain market share in the cell space in recent years. Most notable is its partnership with Nokia Corporation (ADR) (NYSE:NOK), an effort to showcase both Nokia’s design chops and Microsoft’s mobile operating system.
With plenty of money to support the mobile OS push, Microsoft could easily wind up being a strong number three player. That, in turn, would give its business, and shares, a notable boost.
Too Cheap and Too Expensive?
While Google is indeed well positioned, the disparity between its shares and Apple Inc. (NASDAQ:AAPL)’s could be an indication that Google is too expensive instead of Apple being too cheap.
Indeed, while the hoopla about Apple Inc. (NASDAQ:AAPL) returning some of its massive cash balance to shareholders could create a floor under the shares, the long-term risks still remain. It needs to prove it has a handle on the product and market expansion fronts if it wants to remain the largest company in the world.
Google, meanwhile, is the market darling. It needs to put up great numbers to remain so. While its moves might help in the near term, they could also make continued success more difficult over the long haul.
What to do?
The best option for most investors would probably be to avoid both Apple Inc. (NASDAQ:AAPL) and Google right now. However, a quick look at largely unloved Microsoft, with still market leading products and a new mobile operating system, might be a good idea—particularly in light of the shares’ over 3% dividend yield. In this situation, being number three could work out well.
The article Is Apple A Buy Again? originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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