Holidays will help Apple head to $500
The season will be huge for the tech giant, a fund manager says.
By Gregg Greenberg, TheStreet
Just because everybody around is using a cell phone does not mean the mobile Internet wave is over. And the same goes for the bullish move in technology stocks, says Channing Smith, fund manager for the Capitol Advisors Growth Fund (CIAOX).
The $22 million fund, which garners three stars from Morningstar (MORN), is up 8.5% over the past year, putting it in Morningstar's 44th percentile versus its peers. Over the past five years, the fund has returned more than 3% annually, better than 70% of its rivals.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
At what growth stage is the mobile Internet right now?
Smith: The mobile Internet is still in its infancy. If you look at 3G, which is the technology that runs the mobile Internet, we are at 21% penetration worldwide right now. If you look at past technology cycles, what you see is that the 20% mark is really where you cross the chasm, so to speak. And so we have moved from early adoption to mass adoption. That's really where we are.
The leader in the mobile Internet right now is Apple (AAPL), with its iPhone. How much higher can Apple's stock price go?
Smith: We think it can go to $400 or $500 a share. If you back out the cash, it's really only trading around 15 or 16 times earnings. They are growing their iPhone and iPad franchising at enormous rates. We expect this holiday season to be huge for Apple.
The Droid is doing extremely well, quickly gaining market share. What does this mean for Google (GOOG)?
Smith: What we see is a two-horse race between Apple and Google. Google's Android system is basically providing bullets for Samsung, Motorola (MOT) and all the other players in the world to try to compete with Apple. They are very well positioned. Their desktop search is doing extremely well, their display business is doing well and their Android is just now at a billion-dollar yearly run rate. So we think we are still in the infancy for opportunity for Google's mobile, but that's set to explode in the coming years as well.
There has been a lot of complaints about AT&T (T) and their iPhone service. That said, you own the stock. Why?
Smith: We like AT&T's dividend of about 6% dividend. The valuation is very cheap and we think the concerns about the network are overdone. We think a lot of these customers are going to be a lot stickier than investors realize. So we would stick with the stock. They will continue to add subscribers.
Famed hedge fund manager David Einhorn recently announced that he likes Vodaphone (VOD) as a long idea. You also own shares of the company. Why do you find it attractive?
Smith: Vodaphone owns a 45% stake in Verizon Wireless, which is Verizon's (VZ) most valuable asset. As we are going into next year, the cash flows from Verizon Wireless are going to have to be paid in the form of dividends, most likely back to the parent. With Vodpahone's 45% stake they are going to benefit handsomely. Or you may see Verizon try to buy out Vodaphone's stake, and that would come at a premium. Either way, we are in pretty good shape as shareholders.
Merry Christamas, It'll be a gift to Mr. Smith if someone buys it for $500 a share from him.
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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