Chris Umiastowski is the growth investor for Globe Investor's Strategy Lab. Follow his contributions here and view his model portfolio here.
This week I'm vacationing in south Florida, which is a popular destination for Canadian snowbirds. Both my parents and my wife's parents regularly escape here for the winter while living in Canada during the warmer months.
Snowbirds diversify how and where they spend their time for the purpose of living a better lifestyle. Much the same way, investors can diversify where they allocate money to reduce the risk of betting it all on one investment. In my case, as part of a diversification strategy within the mobile communication sector, I've bet on both Google and Apple because I see them as leaders in an industry competing very effectively with each other while leaving others in the cold.
My family is using technology from both companies on our short vacation, and it underscores for me just how tough it is for anyone else to compete. I've got my Macbook Pro and an Android smartphone, while my wife has her iPhone. I also did some shopping at Amazon.com and had a couple of new Google-powered gadgets waiting for me here in Florida. One was a $199 Google-powered laptop computer called a Chromebook. It's fantastic for the multitude of browser-based applications most people are using the majority of the time. The other is a $35 streaming media gadget called Chromecast. This relatively new Google product plugs into the HDMI input on any TV or home stereo equipment so you can send audio or video content from your computer or mobile device to the big screen. Whether it be poolside music during the day or movies at night, Google has put together a set of media-sharing tools with an unbeatable price tag.
Apple's been letting people share media for much longer. Its AirPlay technology lets people stream content from any modern mobile device or Mac to an elegant little $99 box called Apple TV. We use it at home for almost all of our video consumption needs. Apple has long been the king of user-friendly ways to buy and share media. Its products are more expensive and millions of people are happy to pay the premium.
But our mobile devices will soon connect to products outside of the home, too. Last week Apple announced CarPlay with almost every major automobile manufacturers supporting the project. Many cars in the near future will act as extensions of your iPhone, allowing the car's infotainment system to look and feel like iOS when your phone is plugged into it. The iPhone becomes the brains of the car's infotainment system and projects message, maps, music and more to the car's built-in display and sound system.
Apple is leading the way here yet again, but Google probably isn't far behind. It's widely expected that Google will offer a similar set of tools for Android devices to integrate with cars. Google recently formed the Open Automotive Alliance (OAA) to bolster their position in the market just as their formation of the Open Handset Alliance in 2007 helped them bring Android to dominance.
Apple and Google are fighting a good fight with each other while leaving behind traditional competitors like Microsoft. My children are growing up using Chromebooks instead of traditional Microsoft Windows-powered laptops. When they get their first smartphones they will likely be iPhones or Android phones. When they start driving, their cars will likely integrate with Apple and Google operating systems.
I like to think of myself as a pretty astute user of tech gadgets and investor in technology companies. But truth be told, I don't know if Apple or Google will make more money from the connected gadget trend. The simplest solution for me is to invest in both companies, neither of which grabs me as particularly expensive.
Valuation-wise, Google has been showing more consistent growth and has been capturing more market share as of late. As a result, Google trades at almost 20 times next year's forecast earnings. Apple, on the other hand, remains dominant at the high end of the market and some shareholders are nervous that this may not continue. This nervousness is reflected in the share price as Apple investors are only paying about 11 times next year's forecast earnings.
If you think about owning equal dollar amounts of both Apple and Google, you're paying about 15 times earnings for the world leaders in mobile technology. That seems like a smart long-term bet to me.
Chris Umiastowski