For this stock comparison I'm stacking Microsoft (MSFT) against Apple (AAPL) to gauge which one offers the best opportunity for long term investors. Microsoft and Apple are both top three stocks in terms of market capitalization. Beyond that though, we want to understand the growth options and fundamentals that go beyond the stock price.
Microsoft has a price of $102 and a trailing PE Ratio of 24. Over the past year, Microsoft has grown about 10% and that's with the recent downturn in the stock market from Christmas time into 2019. It does have a dividend of 1.82% that pays approximately $1.84, and that goes into the price calculation as well. Apple also has a dividend so they will be comparable in that sense.
Apple has a current price of $166, with a PE Ratio of 13 compared to the 24 of Microsoft. Over the past year, Apple was doing well and then around December and January they got socked pretty hard for concerns that iPhone sales weren't growing. The stock dipped substantially from their highs in the neighborhood of $225 per share. This makes them a “beaten up stock” which is typically a good place to look for value. Apple also has a dividend of 1.75% which pays $2.92.
What you have with Apple is a consumer goods stock versus Microsoft, which is more of a pure breed technology stock. Microsoft has software, Xbox, computer components, Surface tablets, and more. They also have a cloud hosting that's similar to Amazons AWS, as well as a collection of enterprise levels tools they sell for big business. So you see the distinction from Apple being “just” a consumer goods business to Microsoft, which has consumer goods and services, but the bulk of their money comes from the enterprise level. Neither model is right or wrong, it is just important to recognize the difference in revenue streams when analysing these companies.
Now let's look at how analysts are projecting each stock this year. Right now, Microsoft has a strong buy rating across 18 of the best performing analysts. They have a high bid at $140, an average of $124, and a low ball of $75. Usually I throw out the high and the low unless there is an intriguing case I come across. The street has Microsoft trending up and pegged as a strong buy stock. Obviously encouraging if you're making decisions between Apple and Microsoft, you would consider that Microsoft is rating a strong buy.
Next on the board is Apple who you see here has a moderate buy. Between the 30 best performing analysts that actually follow Apple, you've got a high of $260, the average is $179 and the low is $140. Now, the difference between moderate buy and buy is represented over here by the breakdown of the 30 analysts. You have 15 who are saying, “Buy.” You have 15 that are saying, “Hold.” Hold means, if you already own the stock, just put it away and wait. This isn't the time to sell, and this isn't the time to buy more, if that makes sense. Compared to Microsoft, Apple is actually considered less of strong buy. You have 15 people, in fact, who say, “Do nothing right now and let's see where this thing goes.” So between the two, Microsoft is the higher rated stock, with analysts at least, over Apple.
Now let's take a look at the fundamentals of the businesses. So here's a chart that compares a couple segments of each business. From a profitability standpoint, Microsoft net income is $16.5 billion, Apple comes in at $59.5 billion, so Apple wins that category. Earning per share, Microsoft at $3.88 and Apple at $11.91. Apple wins earning per share. Trailing PE Ratio, Microsoft 26, Apple at 12,. Apple wins again because lower PE Ratio is considered better.
Now let's look at Forward PE. Microsoft has a 20. Apple is at 10. Apple strikes again. PE Growth, Microsoft has $1.84, Apple has $1.38. This is one where Microsoft gets its first point, if you will, in our tab. Net margins, Microsoft makes about 16% profit on the goods that they sell, Apple is at 22% so they make more profit per sale. Return on equity, Microsoft gets 39% return on their equity, Apple get 48% which is very good. Return on assets, 12% to 15% so Apple wins ton that front. On the dividends side, the dividend yield for Microsoft is 1.81%, Apple is 1.97%. So Apple with a slight gain in the dividend yield, although both of them are under 2% and and very close to each other.
So at the end of the day, when you stack Microsoft verse Apple, the fundamentals of the Apple story are much more intriguing as far as value per stock that you purchase. And even though that Microsoft is, right now, the strong buy, we have to ask ourselves, “Why isn't Apple in that same category when is wins fundamentally across all notable revenue columns?” And the key here I think is this, this is a news sentiment calculator from TipRanks. And you see right here, strong negative.
So I realize this is just a widget but it basically calculates all the articles and headlines that are written by Apple across the board. We know for sure that Apple's had a decline in price, they've shorted their estimates a little bit. So it all builds up into a negative New Sentiment. And for value investors/long term investor like myself, news, in the short term, it's not really a concern of mine. Okay? So assuming that we're not saying Apple is closing up business and every iPhone is catching on fire and they'll never sell another one, periods like this are just a time to buy more.
The point here is, both companies are really good but I really worry about folks who get sucked into the opinion of analysts and media personalities. Most of them are going to see “strong buy” for Microsoft, and on the Apple side the sentiment is significantly more negative. What I'm trying to illustrate here is there's a lot more to the picture, particularly from a financial standpoint. Both of these companies are good but you have to be careful about the snowball effect of bad news, and how it influences your decision to buy stocks.
This is an example where I probably would choose Apple almost exclusively because it's down and at such a cheap price right now. They are going to have growth problems in the near future, that's already been stated. There's already concerns about their units selling in China. I think Microsoft wins the growth story between these two behemoths but it's not going to be by a huge margin. Microsoft's so big, that outside of inventing something completely new, they're not going to have a gigantic earning increase. They make so much money that they're going to be lucky to move the needle three to five percent next year. Apple might remain flat, they might even dip year over year. The catch is, that it will be a dip from much better times. Apple is not going to wake up and be unprofitable, but it's the growth of the earnings that gets so much attention.
We know that one day, maybe it's two years from now, maybe it's three years from now, Apple will come out with the next super shiny phone, and this stock will shoot right through the moon. They are already working hard on it, and this negative sentiment will push them to make it even better. So think about the opportunity, think about their financial track record. Take a look at more numbers than people's recommendations, make your own decision according to your goals. That's really what I was trying to accomplish with this video. Hope it makes sense.