Momentum-Stock Doubters Get Walloped As Facebook and Apple Reignite (Forbes)

“Stick with momentum plays” appears to be one of the urgent alerts the market delivered yesterday (Apr. 23) as Apple AAPL +8.2%, Facebook and Google GOOG -0.34% clicked Refresh.

Shares of these tech leaders reignited as Apple and Facebook surprised Wall Street with positive announcements and first quarter results that pleased investors, including some technology-sector doubters.Apple’s stock boomed and climbed some 8%, to $564 a share after Apple CEO Tm Cook proclaimed that the maker of the ubiquitous iPhones and iPads will return to shareholders more than $130 billion by the end of next year, up from a previous goal of $100 million. That adds $90 billion to Apple’s total buyback program, way up from a previous $60 billion target.

And Facebook’s stock also bolted, rising nearly 4% to $62 a share, after the world’s largest social media company reported first-quarter results that showed profits tripled to $642 million  and revenue jumped to $2.5 billion from $1.46 billion a year. In 2012, the year Facebook went public, net income was a paltry $53 million, or 1 cent a share.

Prior to yesterday’s rally, the rambunctious technology stocks had been taking it on the chin, with most investors spooked by the sudden reversal in technology hotshots Google, Facebook  — and Apple (AAPL), which continued to be on the ropes.

These firebrands spearheaded the market’s recent pullback prior to yesterday’s massive comeback, although the group’s big retreat shouldn’t have been a surprise. Many of these “momentum” tech stocks had been super-hot for more than a year, powerfully barreling higher to new all-time record levels. So some air had to be let out of those hefty gains.

But long-term investors – and the nimble among the opportunistic traders –who took advantage of the decline by snapping up the battered tech shares, notably Facebook and Apple, reaped a bonanza.

Google, for instance, which did a two-for-one-split, had dropped to $534 a share from its 52-week high of $604.83, and Facebook was down to $59 from a year’s high of $72.59. And the long-beleaguered Apple had fallen to $524, off from its 52-week high of $575.14 – and way down from its all-time high of $705.07 reached in 2012.  In 2011, the stock had plunged to as low as $310.50 a share.

But swiftly, all that has changed. Google, Facebook and Apple pulled a surprising powerful turnaround that has prompted many investors, including some tech skeptics, to give the technology stocks a second look. Quite possibly, they are changing their negative outlook on so-called momentum stocks. To be sure, Google, Facebook and Apple have recaptured their standing as the tech leaders to watch – and own.One of the most closely watched stocks is Google, the world’s largest Internet enterprise specializing in web search with a singular purpose of organizing global information to make it universally accessible and useful to everyone. So its decision to split its stock shouldn’t have been a surprise. The company did a two-for-one split in April 2014, creating Class C shares (GOOG)which have no voting rights.

Some tech investors were initially disappointed at Google’s first-quarter results which, they argued, weren’t as good as had been forecast by some analysts. The average paid clicks increased 26% and average cost-per-click dropped some 9%. But revenues impressed the bulls as it climbed 19%, to $15.4 billion, way up from $13 billion a year ago. First quarter earnings of $6.27 a share vs. $6 a year ago, however, were below some analysts’ expectations.

But S&P Capital IQ’s Scott Kessler was one of those who liked the first-quarter results, who had raised his recommendation on Google’s Class A shares (GOOGL) to a buy from hold on April 7 — way before the earnings report came out. Kessler expects the stock to drive up to $650 a share in 12 months. Kessler figures Google’s revenues will jump 11% in 2014 and by 15% in 2015. Google closed on Apr. 24 at $534.44.

Robert S. Peck, analyst at SunTrust Robinson Humphrey, says Google continues to trade at an “attractive valuation to its growth profile vs. its large-cap peer group.” He notes that “given the still-steady growth of Google’s more mature core advertising markets and its leading competitive positioning in products like YouTube and mobile (which are in a much early growth stage), “we feel Google is attractively valued.”

Facebook, which has spent more than $20 billion to acquire  messaging upstart WhatApp and little-known virtual-reality enterprise Oculus VR, is surely another momentum play that tech and social media investors should own. As revenue rocketed 72%, “the percentage of daily users of Facebook continues to increase, much to our surprise and joy,” said CEO Mark Zuckerberg.

Laura Martin, analyst at investment firm Needham who rates Facebook a buy with a price target of $80 a share, notes that Facebook’s “captive audience is the installed base over which the company has optionality to generate revenue.” Facebook has monthly active users of 1.28 billion, with average revenue per user in the first quarter rising 33% to $2, according to the company.

Martin figures that “at 17 minutes spent per day, the longest online, Facebook’s upside potential is amplified by long time-frames available to reach its audience.” Facebook, she says, is a rare large-cap growth company that “deserves a premium multiple, given its $3.7 billion of daily trading volume, a $14.4 billion market cap, and revenue growth of 55% in 2013, and an estimated 41% in fiscal year 2014 despite its size.”

Apple’s surprisingly better-than-expected quarterly results — and unexpected upbeat announcements aimed at rewarding shareholders — certainly gave its stock a robust boost. Its shares continued to rise today (Apr. 24), rising some 8%, to $567 a share. The big positive shocker was the company’s declaration of 7-for-1 stock split, coupled with an 8% dividend increase—plus the unusually large boost to its share buyback program.

“That should show you how much confidence we have in the future of the company,” CEO Tim Cook told the Wall Street Journal. Apple reported fiscal second quarter earnings (ended Mar. 29) of $10.22 billion, up 7% from the year-ago period, and per-share earnings jumped 15%, to $11.62. Revenue climbed to $45.6 billion from $43.6  a year-ago. The numbers beat Wall Street’s consensus forecast.

Even before Apple’s release of its unexpectedly positive quarterly results, Ian Gendler, executive director of Value Line Research, expressed optimism about the stock as an undervalued long-term play. “The consumer electronics behemoth appears set to return to growth mode this fiscal year (ending Sept. 27, 2014),” says Gendler. He notes that Apple’s stock has been a laggard since January, likely due to weaker-than-expected iPhone shipments during the December quarter.

But on the bright side, he adds, the “next-generation iPhone6 will probably be introduced this summer, which should result in elevated sales for Apple.”Additional product innovations, says Gendler, will remain a top [priority for Apple and rollouts will likely be catalysts through the end of the decade.

Justin Hellman, Value Line analyst who tracks Apple, figures Apple’s next generation iPhone 6 will probably come with a larger display of 4.7-inch to 5.5inch variations which, he says, “should be a major deal for the company.” He notes that Car-Play, a function that allows Apple’s mobile devices to work with automakers’ built-in-the-car systems, has already been introduced. And other new products, says Hellman, should include a smart iWatch and a branded set-top box to stream video.

In sum, long-term investors looking to ride with the head-turning innovations from Silicon Valley and the tech world to  recapture their portfolios’ momentum need to participate in the continuing fast growth potential in Google, Facebook, and Apple.

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