What’s Going on With Google?

Google has not launched any sexy, new, must-have products. There have been no substantial software upgrades, but their stock has risen a blistering 36% since its June bottom — even outperforming idolized Apple (AAPL) by a large margin. What gives?

Scanning the current research on Sergei Brin and Larry Page’s start-up won’t do you any good. There is a lot of cheering about Google-directed driverless cars, which I have seen driving around my neighborhood. Yesterday, California governor, Jerry Brown, arrived at a press conference in one, where he signed the law legalizing their presence on the state’s congested highways. Will any of this contribute to Google earnings in the near future? Perhaps in 2022 (no typo).

Talk to long-term analysts who cover the company and you get directed to their 2011 purchase of Motorola for $12.5 billion as a gateway to the smart phone business. Its recently-released Razr I is said to be comparable to the iPhone 4s with a cheaper price. But with the lines at Apple stores snaking around the block in every major city in the world to buy the iPhone 5, do you really want to enter the smart phone business right now?

Google fans point to Google Glass Eyeware, which will have most of the functionality of a smart phone built into a set of fashionable glasses. They will be released to the mass market at the end of 2013. Others point to the construction of a new national fiber network that will boost your online speed from your current 10 MB/sec (110 MB/sec for me) to 1 GB/sec. A faster Internet means they can shove bigger and more adds down-line your way for more money. And the space program? These are all revenue items that are either inconsequential or very long-term at best and certainly don’t justify the recent pop.

I have a theory about the market’s sudden love affair with Google. Most professional money managers have single position limits that are set in stone, usually 5% or 10% of their total portfolio. Position size is usually audited at each quarter end. Apple has gone up so much this year, some 70% that many managers are busting through these limits, not from buying too many shares, but purely through capital appreciation (remember, Apple was my number one technology pick on January 1). So as we approach quarter ends, these managers lighten up on Apple to get back below their statutory limits.  This has been the cause of $40 point sell-offs we have endured since last week.

They have another alternative to engaging in these accounting shenanigans. Just buy Google instead. It is growing slower and is a little more expensive. But the Google and Apple share prices are almost identical. And most importantly, it is in the same sector classification as Apple. Google is a smaller company than Steve Jobs’ creation by half. That’s why like amounts of money caused the meteoric rise in Google shares.

How does this story end? These same managers that got out last week, pile back into Apple in the new quarter starting Monday. It may not happen on the first day, but it will happen. If we get the anticipated fantastic iPhone 5 sales figures this weekend, and we have a backdrop of a decent “RISK ON” environment, Apple stock could cover some serious real estate to the upside. And guess what? Investors will buy Google too.


Funny, I don’t see any Earnings.

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