Why Apple, Alphabet and Facebook Aren’t Overvalued

Despite years of outperformance, some analysts still consider big technology stocks Apple Inc. (AAPL), Alphabet Inc. (GOOG) and Facebook Inc. (FB) to be “value stocks." All three are still “great bargains,” according to Monness, Crespi, Hardt analyst Brian White, per an interview with CNBC. He calls Apple “the most underappreciated stock in the world.” With Apple trading at around $209 on Wednesday morning, White’s price target of $275 implies further upside of more than 30% even after the stock has gained more than 20% so far this year.  

To analysts like White, the price of these three stocks got even more attractive today as they fell with the broader market downdraft amid jitters over trade tensions.

3 Big Techs: Still Lots of Upside

Data: As of 11:00 a.m. EDT, August 15.

Still Great Bargains

The valuation of these three stocks is higher than the average S&P 500 company, but these stocks' growth potential is what makes them value plays for White and others. Apple, for example, recently had a “phenomenal” earnings report, supporting White's bullishness. Alphabet also reported a strong earnings and revenue beat in the most recent quarter, providing evidence for further optimism.

Facebook, on the other hand, having missed its earnings expectations and other key metrics, saw its stock plunge 24%, which wiped out $130 billion in market capitalization. The disappointing earnings report, however, hasn’t shaken White’s optimism. “When you see news flow like this, I tend to think it comes and it goes and generally presents a buying opportunity," he told CNBC in his August 10 interview.

Apple’s Stock: Plenty of Bite Left

Source: Monness, Crespi, Hardt

Apple

Given Apple’s exposure to China, the country where the iPhone is produced, some are worried that escalating trade wars and the tariffs that go with them could weigh on Apple’s main source of revenue. However, many analysts are still optimistic as the tech giant has begun to shift away from over-reliance on hardware sales towards high-growth software and its service businesses like Apple Music and App Store. Additionally, the company has benefited from the corporate tax cuts, helping to bolster its already-strong financial health and future growth potential. With iPhone sales the still dominant revenue-generator, the outlook for sales this fall is promising. AirPods and Apple Watches are also faring well. (To read more, see: 4 Reasons Apple’s Big Stock Gains Aren’t Over.)

Alphabet

The big generator of revenue for Google’s parent company comes from online advertising sales, for which it competes heavily with Facebook. However, Alphabet’s advantage is that it has a diversified base of services/apps, including Search, Chrome, Maps, YouTube, Play Store, Gmail and Android, with each boasting more than 1 billion monthly active users (MAU). As higher operating expenses and capital expenditures have begun to pay off, analysts are becoming increasingly optimistic about the company’s future. (To read more, see: 7 Reasons Why Alphabet Will Dominate.)

Facebook

Facebook still has a strong portfolio of potential growth drivers in services/apps like its core social-networking site, Instagram, Facebook Watch/Instagram TV, WhatsApp, and Stories, despite offering fewer of these services and the fact that many are less well known than Alphabet's offerings. Despite the weak earnings report and underperforming stock, Stifel analysts believe that a sum-of-the-parts valuation combining these different business components puts the company’s stock at $210, implying nearly 20% upside.