Growth vs. Value: Is Microsoft Stealing Google’s Investors?

Microsoft soars while Google pulls back; is something larger at play here?

Mar 27, 2014 at 8:30PM

Microsoft (NASDAQ:MSFT) had long been blasted as being a stale technology company that "missed mobile" and couldn't innovate. While long-suffering shareholders for the past 10 years dealt with a frustratingly range-bound stock in owning Microsoft, shareholders of names like Apple and Google (NASDAQ:GOOGL) have been very richly rewarded over that timeframe. However, something interesting has been happening in the markets over the past few weeks -- is Microsoft getting Google's money, or is something bigger going on? 

What's been happening?
Over the past month, shares of Google are down 7.23%. Over that same period, shares of Microsoft are up a respectable 6.2%. Now, one could reasonably say that these moves aren't related -- it's just that Microsoft is breaking out to multi-year highs and Google is seeing a healthy pullback after such a massive run. While the direct Microsoft/Google inverse correlation may not exist, the past month has seen a general bias toward value rather than growth.

The following chart is split into two columns. On the left, we have the one-month returns of a number of household "value" technology stocks (all with price-to-earnings ratios under 15), and on the right, we have the 1-month returns of a number of household "growth" names. The trend is, for lack of a better word, interesting:

Value Tech

1-Month Returns

Growth Tech

1-Month Returns















ARM Holdings




3D Systems


Notice a trend? The high-growth names that have done so well over the past year are starting to pretty severely underperform. What's going on here? Why is growth suddenly out of vogue and why is value now in?

Could it be buyer exhaustion?
Keep in mind that while the "growth" names in the right column have underperformed over the short term, they're still wildly outperforming almost all of their value brethren. Facebook is still up a whopping 172% from its 52-week low, and 3D Systems is still up 81% over the past year. While value name HP has performed quite well, up 40% over the past year, and while Microsoft has been a surprisingly potent performer, up 40.85% over the past year, the growth names have done better.

Could this be a case of buyer exhaustion? No matter how many companies Facebook manages to buy with its stock, there's still no escaping the fact that at its peak, Facebook's market capitalization nearly topped $200 billion on about $1.68 billion in trailing-12-month net income. At what point have all of the investors who are going to invest, invested? At what point do the valuations start to look ridiculous even with the most optimistic of assumptions?

When the growth names are all bid up, focus turns to value
The reason it's so interesting to look at value versus growth is to try to get a sense of what's going on here. Is it really a coincidence that as the valuations on the high-growth names become stretched that investors may be interested in taking their gains and putting those winnings into something a bit less risky to preserve that capital? Could that explain what's happening here?

Foolish takeaway
I'm not trying to disparage the "growth" names I've mentioned. When they're hot, they're hot, and they'll make investors much more money than most value-oriented names could hope to. However, when it's time for a stock like Facebook, Google, or Twitter to take a breather, that money has  to go somewhere, and that somewhere appears to be value-oriented tech names.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends 3D Systems, Apple, Facebook, Google, Intel, and Twitter and owns shares of 3D Systems, Apple, Facebook, Google, Intel, IBM, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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