Shares of Apple (NASDAQ:AAPL) have now pulled back by nearly 40% from September highs. Plenty of Foolish ink has been spilled documenting the Mac maker's precipitous fall from Wall Street grace. At the same time, both the broader market and mobile rival Google (NASDAQ:GOOGL) have continued marching into uncharted territory and tapped all-time highs recently. Any investor that went long Google and short Apple in September would be sitting pretty right about now.
Among other reasons, institutional trading has played a large role in this switcheroo, as several large hedge funds were busy frantically unloading their shares last quarter. Meanwhile, the search giant has now surpassed the iPhone maker as the top holding among U.S. mutual funds and hedge funds.
With Google flirting with all-time highs, much like Apple was in September, is the search giant due for an Apple-esque pullback?
Oracle Investment Research thinks the answer is "yes." Chief market strategist Laurence Balter notes that all the conditions surrounding Google are eerily reminiscent of those for Apple six months ago. At the time, analysts were clamoring to see who could assign the highest price target on Apple, with ongoing talk of $1,000 share prices and trillion-dollar market caps. Google is far from reaching a 13-digit valuation, but $1,000 seems just around the corner at this rate.
Balter now has a $700 price target on Google, up from $670. That would represent a pullback of 16% from current prices. That's not nearly as bad as Apple's pullback, but then again no one would have expected a 40% decline.
The strategist notes that Google is now the 10th most expensive stock in the S&P 100, trading at 24.6 times earnings. The search giant has a PEG ratio of 1.2, while Apple's PEG of 0.55 makes it the 5th cheapest in the S&P 500. Google's return on assets has been falling by roughly 6.5% annually while Apple's has been rising by 11.7% annually.
It's worth noting that Oracle came pretty close to calling Apple's top. Exactly a month before shares topped out at $705 in September, Oracle downgraded Apple to "hold" alongside a $650 price target (shares were $660 at the time). Investor expectations were a little too frothy, the firm reckoned. Three months ago, Balter also unsuccessfully attempted to call a bottom on Apple, upgrading shares to a "strong buy" as shares had reached 10-year low in valuation based on its EV/EBITDA.
Balter thinks that investors buying Google at current prices are overpaying. Will he be right?
Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.