As technology stocks that carry three-digit price tags, Google Google and Apple Apple are part of a fairly exclusive fraternity. This summer, after the former missed quarterly earnings expectations and the latter beat the Streetâ€™s estimate, some wondered if Googleâ€™s run of outperforming Apple could finally start to reverse.
In a recent conversation with a mutual fund manager who owns both I asked that very question. His response: the trend may shift, but both companies are still long-term buys.
Greg Adams has a dividend focus in the Alger Growth Income Fund, but he doesnâ€™t necessarily get hung up on whether a company is actually paying one.
While the vast majority of his holdings are paying shareholdersÂ every quarter, he also finds room in the portfolio for a stock like Google. Adams is willing to sacrifice current income for a company with a stellar growth rate and a massive cash hoard that will allow it to pay a dividend at the drop of a hat should the board so decide.
There are few better examples than Apple, which only began paying a dividend in 2012, but which Adams held for some time before that on the assumption that the companyâ€™s impressive cash generation would ultimately lend itself to some form of capital distribution.
On the Apple front, Adams said the quarter was a positive, but only insofar as it exceeded low expectations. â€œThe next key is new products, especially a low-end phone and a refresh on the high end,â€ he said. With something of a floor put in around the $400 level by the companyâ€™s massive capital plan â€“ it upped its buyback authorization and dividend payout in April â€“ itâ€™s something of a wait-and-see game for the next few months. â€œIt feels like weâ€™re turning the corner, but itâ€™s still a slog until we get new products,â€ Adams said.
Google, meanwhile, saw its march toward $1,000 a share hit a snag in July when its second-quarter results came up well short of expectations.
Adams was sanguine about those results though. â€œThe quarter was a little disappointing, [but it came] on the heels of upgraded expectations,â€ he said, calling Google a story of â€œcontinued cash generation,â€ even as the company works through headwinds in the mobile ad business. â€œWe think expectations on Google got ahead of themselves,â€ he said, â€œitâ€™s still headed in the right direction.â€