Topic: Growth Stocks

APPLE INC. $441 – Nasdaq symbol AAPL

APPLE INC. $441 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 940.1 million; Market cap: $414.6 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.8%; TSINetwork Rating: Average; www.apple.com) gets 69% of its sales from its hugely popular mobile devices: the iPhone smartphone and the iPad tablet computer. The remaining 31% comes from its Mac computers and iPod music players.

In its 2013 third quarter, which ended June 29, 2013, Apple’s sales rose 0.9%, to $35.3 billion from $35.0 billion a year earlier. Thanks to strong demand for older, cheaper models, the company sold 31.2 million iPhones, up 20.0% from a year earlier. However, iPad sales fell 14.2%, to 14.6 million units. Apple also sold 6.6% fewer Mac computers, and 32.3% fewer iPods as many iPod users upgrade to iPhones.

Even with the higher sales, earnings in the quarter fell 21.8%, to $6.9 billion from $8.8 billion. Earnings per share fell 19.8%, to $7.47 from $9.32, on fewer shares outstanding.

The lower earnings are partly because Apple is spending more on improvements to its main products, and developing new ones. These may include an Internet-connected wristwatch, and a new TV set that would make it easier for users to download movies from Apple’s iTunes online store.

The company’s research costs in the latest jumped 34.5% in the quarter, to $1.2 billion (or 3.3% of sales) from $876 million (or 2.5% of sales) a year earlier.

Apple can easily afford these costs. It holds cash and investments of $146.6 billion, or $161.40 a share. Its long-term debt is just $17.0 billion.

The company will probably earn $39.29 a share in fiscal 2013, and the stock trades at just 11.2 times that estimate. However, the stock is vulnerable to a sharp setback if Apple’s new products fail to live up to the media hype. The $12.20 dividend yields 2.8%.

Apple is still a hold.

GOOGLE INC. $903 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 333.1 million; Market cap: $300.8 billion; Price-to-sales ratio: 5.5; No dividends paid; TSINetwork Rating: Above Average; www.google.com) is the world’s top Internet search engine, with about two-thirds of this market. It makes money by selling advertising on its websites. Google charges advertisers every time a user clicks on one of their ads. The company gets 93% of its revenue from advertising.

In the three months ended June 30, 2013, Google’s revenue rose 19.5%, to $14.1 billion from $11.8 billion a year earlier. The company’s Android software powers 70% of the world’s mobile devices. That’s helping drive more traffic to its websites: paid clicks jumped 23% in the quarter.

However, advertisers pay lower rates for mobile ads because they are more difficult to see on mobile devices’smaller screens. As a result, the average cost per click fell 6%. Google recently launched a new way of selling ads for both computers and mobile devices. That should help increase ad rates.

Earnings fell 3.8%, to $3.2 billion from $3.4 billion. Earnings per share declined 5.9%, to $9.56 from $10.16, on more shares outstanding. That’s mainly because Google continues to invest in new products, such as upgraded smartphones from its Motorola Mobility subsidiary. It also spent $2.0 billion (or 14.1% of revenue) on research, up 29.2% from $1.5 billion (or 13.0% of revenue).

The stock trades at an acceptable 23.4 times Google’s projected 2013 earnings of $38.60 a share. The company also holds cash of $54.4 billion, or $163.39 a share. Its long-term debt is just $2.0 billion.

Google is a buy.

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