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Tech Face Off: Alphabet Versus Apple ETFs

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A turn of fate made the best performers of 2015 the biggest victims of the global stock market rout in the beginning of 2016. The most notable among the ill-fated were the technology stocks and their ETFs. This is especially true as PowerShares QQQ ETF ( QQQ ) tacking the Nasdaq-100 Index lost 13.6% from a year-to-date look compared with the 9% loss for the broad market fund ( SPY ) and 7.8% for DIA (see: all the Technology ETFs here ).

The steep decline came on the heels of persistent fears of a global slowdown and a strong dollar as many tech companies generate major chunks of revenues from overseas. Additionally, a slew of disappointing earnings reports from the major players, lofty valuations and lesser expectations for higher interest rates are weighing on investors' sentiments. Notably, the two high-growth corners - Internet and software - have been hit hard, compelling investors to avoid them.

In such a sluggish backdrop, one member of the FANG group - Alphabet ( GOOGL ) - has been catching investor attention lately, especially following its robust Q4 results. The company strongly beat the Zacks Consensus Estimate by 41 cents on earnings per share and $4.4 billion on revenues. Robust results were driven by increased usage of YouTube, machine-purchased ads and Google search on mobile devices (read: 4 ETFs to Watch as Alphabet Gains on Q4 Earnings Beat ).

As a result, shares of the online advertisement giant jumped 6% in after-hours trading on February 1, after the earnings release and overtook the iPhone maker Apple ( AAPL ) as the world's most valuable company in terms of market capitalization. However, this supremacy proved short-lived, as Alphabet's market cap plummeted nearly 10% in just a few days. Apple again regained its top position with a market cap of $526.79 billion versus $484 billion for Alphabet.

Alphabet versus Apple

Both stocks have a Zacks Rank #3 (Hold), suggesting room for upside in the coming days. However, Apple looks cheaper than Alphabet with a Value Style Score of A as it is currently trading at a P/E of 10.30 versus 25.26 for Alphabet. This is making the AAPL stock attractive for investors and is creating an opportunity for its market cap to go higher. Additionally, the stock has an enticing flavor of a Growth Style Score of A with an average target price of $137.89, as per the analysts compiled by Zacks. This indicates a 45.1% upside to the current price.

Further, about 81% of the analysts have a Strong Buy or Buy rating on Apple. However, Apple's period of exponential growth might be ending with the projection for the first quarterly drop in more than a decade and the saturation of the smartphone market. Apple earnings are expected to decline 1% this year compared with the industry growth of 0.5% while revenues will likely decline 1.9% versus the industry growth of 7.2% (read: Apple's Explosive Growth Era Ending? ETFs to Watch ).

On the other hand, Alphabet has a Growth Style Score of B and a Momentum Style Score of A. Earnings and revenues are estimated to grow 22% and 17.2%, respectively, compared with a negative growth rate for the industry. According to the analysts compiled by Zacks, Alphabet has an average target price of $891.31 with about 94% of the analysts having a Strong Buy or a Buy rating. This indicates a 26.5% upside to the current price of GOOGL.

Based on the above discussion, we can conclude that though growth at Apple has slowed, it still has room for upside compared to Google's parent Alphabet and will likely lead in terms of market cap over the coming months. As such, investors could bet on AAPL in a basket form with ETFs should they have patience of extreme volatility. In particular, Vanguard Information Technology ETF ( VGT ) and MSCI Information Technology Index ETF ( FTEC ) make up for a nice play. Both of these funds have more than 13% share in Apple and have shed about 12.6% in the year-to-fate timeframe. VGT is more popular and liquid with AUM of $7.5 billion.

Meanwhile, low-risk investors could bet on Alphabet's growth story with the help of John Hancock Multifactor Technology ETF ( JHMT ) and First Trust Dow Jones Internet Index ( FDN ) . Alphabet accounts for 6.5% share in JHMT and 5.7% share in FDN. JHMT has lost 11.2% while FDN is down over 22% so far this year. Here, FDN is the popular play and provides exposure to the Internet segment of the broad tech space (read: Internet ETFs to Buy After the Latest Sell-Off ).

Investors seeking to invest in both companies at the same time could look at iShares Dow Jones US Technology ETF ( IYW ) and Select Sector SPDR Technology ETF ( XLK ) . Both these funds are popular options in the tech space with AUM of $2.3 billion and $11.6 billion, respectively. Apple occupies the top position in both with 16.8% share in IYW and 14.1% share in XLK. Meanwhile, Alphabet takes the fourth spot in the IYW portfolio with 6.6% share and the sixth position in XLK holding 5.5%. IYW has lost 12.2% and XLK is down 9.1% from a year-to-date look.

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ALPHABET INC-A (GOOGL): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

VIPERS-INFO TEC (VGT): ETF Research Reports

FID-INFOTEC (FTEC): ETF Research Reports

JH-M-F TECH (JHMT): ETF Research Reports

FT-DJ INTRNT IX (FDN): ETF Research Reports

ISHARS-US TECH (IYW): ETF Research Reports

SPDR-TECH SELS (XLK): ETF Research Reports

NASDAQ-100 SHRS (QQQ): ETF Research Reports

SPDR-DJ IND AVG (DIA): ETF Research Reports

SPDR-SP 500 TR (SPY): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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