3 of the Top Apple Inc. Acquisition Targets

You’ve probably heard: Apple Inc. (NASDAQ:AAPL) has a ton of cash, with some $252 billion on its balance sheet, a majority of which is held overseas.

Thanks to the new GOP tax cut legislation, the company is planning on bringing it back home. After accounting for taxes and money already promised (such as dividend and share repurchase announcements and capital expenditure plans) the company should have around $40 billion in its pockets to spend.

That’s likely to fire up expectations of M&A activity — something that’s perennially assigned to AAPL given its deep pockets. Especially since many of the companies thought to be buyout candidates are troubled technology stocks with not much else to bolster their prices.

Here are three to watch:

Apple Acquisition Targets: Twitter (TWTR)

(AAPL) Apple Acquisition Targets: Twitter (TWTR)

Twitter Inc (NYSE:TWTR) shares were recently upgraded to buy by analysts at Aegis Capital on expectations of another 17% rise in price this year — following a 40% increase since the company’s third-quarter earnings report. This is based on predictions of an acceleration in ad sales growth, stable user growth, profitability expansion and, yes, the specter of an acquisition.

The company will next report on Feb. 8, before the bell. Analysts are looking for earnings of 6-cents-per-share on revenues of $689.5 million. When the company last reported on Oct. 26, earnings of 10 cents beat estimates by 4 cents on a 4.2% drop in revenues.

Apple Acquisition Targets: Fitbit (FIT)

(AAPL) Apple Acquisition Targets: Fitbit (FIT)

Fitbit Inc (NYSE:FIT) shares have been under pressure lately, down roughly 25% from the highs set in early December to return to levels not seen since August. Analysts at ROTH Capital recently initiated coverage with a $10 price target, but that wasn’t enough to get the bulls motivated. The company hasn’t been able to capitalize on its first-mover advantage in wearables despite solid growth in the area, with IDC expecting shipments to double by 2021. All of this makes an AAPL buyout appealing because it could more easily expand its footprint in this area (by offering a cheaper alternative to the Apple Watch).

The company will next report results on Feb. 21, after the close. Analysts are looking for a loss of 6-cents-per-share on revenues of $583.6 million. When the company last reported on Nov. 1, a loss of 1-cent-per-share beat estimates by 3 cents, despite a 22.1% drop in revenues.

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Source: Investor Place

Alphabet Inc’s Google Is Still Growing, But Where Is It Going?

Alphabet Inc (NASDAQ:GOOGL) shares have risen 37% over the last year, beating the NASDAQ average. When it reports earnings on February 1, Google is expected to announce over $100 billion in revenue for 2017. If Alphabet meets estimates, the company should show earnings per share (EPS) of $32.33 for the year.

The question for investors: At a time when Google is entering more competitive markets, does 15%  growth in revenue and earnings justify a price of $1,138 per share?

As I’ve written before, Google is no longer just a cloud company, but a cloud-and-devices company. And in this new market, it finds itself fighting against companies just as good as itself, like Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN). The company is also working against new political headwinds.

Google Is Still Growing

Despite slowing growth and storm clouds on the horizon, Alphabet stock keeps rising because its earnings multiple keeps rising. The price to earnings multiple is currently at 39, up from 30 a year ago.  Yes, the average S&P 500 stock is now at a PE of 26, but does GOOGL deserve the premium, and does the S&P deserve the price?

Google is now third on Fortune’s list of the most-admired companies, which is great. But the two companies ahead of it are Apple and Amazon, increasingly competitors.

To further branch out, Google is making yet-another attempt to crack the Chinese market, signing agreements with Tencent Holdings Ltd (OTCMKTS:TCEHY), and investing in Chinese technology companies.

Google will benefit more from having its devices manufactured in China than China will from Google’s presence due to the country’s strict internet censorship and policies which don’t favor foreign tech companies.

Where Does Google Go From Here?

Right now, Alphabet is focusing its investments on expanding its cloud footprint, laying more fiber cable globally and trying to crack the developing AI market currently led by Amazon.

It is this competition with Amazon that Google bears are watching most closely. More online shoppers are using search engines to find products than before, but in the U.S., 49% go to Amazon first. Amazon is growing faster than Google in entertainment — thanks to its Alexa speakers and Fire Stick. The two companies are currently dueling across platforms and devices, with moves like Amazon disabling Fire Stick’s YouTube app four days before Google was planning to pull support.

Google appears to be waiting for better wireless technology before moving toward the high-speed internet sector currently dominated by Verizon Communications Inc. (NYSE:VZ), AT&T Inc.(NYSE:T) and Comcast Corp. (NASDAQ:CMCSA). The comany has pulled back on Google Fiber, no longer announcing new cities or even lighting fiber it’s laid in the ground. Experiments with serving homes from poles are continuing. 

The Bottom Line

While Alphabet remains a great company and a good stock, it’s facing new competition on multiple fronts where victory for it is uncertain.

Google’s growth continues to slow, thanks to the law of large numbers. And as its competition with Amazon increases in both cloud and devices, its margins are not going to accelerates.

The company has $86 billion stashed overseas and could bring some of that back to the U.S., benefiting shareholders. But Google is a global company. It needs the cash where it is, and Apple stock didn’t exactly take off like a rocket when it announced its repatriation scheme.

So why again am I supposed to pay a premium PE for this stock?

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Source: Investor Place