Analysts say that despite Google’s recent outperformance, Apple will be the winner in the long run. Let’s examine this in more detail.
First off, the most updated S&P 500 component weights’ index shows Apple (AAPL, -0.53%) at the top of the pile with a weighting of 3.877309 while Google (GOOG, -3.22%) comes in at the 12th spot with a weighting of 1.039828. In addition, Apple has a weighting almost twice that of second placed Microsoft which is weighted at 2.008136.
Online advertising giant Google is valued at about 21 times next year’s earnings as well as more than six times next year’s forecasted sales. Apple, on the other hand, is valued 12.7 times its forward earnings and approximately three times its projected sales for the next year. Many tech stocks have stretched valuations which add importance to these numbers.
Apple has been deploying its cash resources to enrich shareholders with buybacks and has spent as much as $90 billion on share repurchases since 2012. The total number of Apple shares outstanding has dropped by 12% over the past three years. Compared to this, Google has been totally inactive in the buyback field of returning money to shareholders.
Also, Apple has plans for a package to return up to $200 billion to shareholders by the end of March 2017, including dividends. This is an income stream provided to shareholders by Apple that Google does not offer. Apple’s headline yield might not be that exciting at the current 1.7%, consistent growth since 2012 with dividends having grown by 37%, is an indication that future payouts to shareholders will be higher going forward. Google has hinted that it might return capital in its recent quarterly report, but as the saying goes, talk is cheap but money buys the whisky.
Apple is without a doubt leading the field in cell phones with the iPhone 6, by grabbing 20.4% of the market share, up from 17.8% while its nearest competitor, Samsung dropped from 29.5% to 19.9%, comparing their 4th quarter 2014 sales to those of the same period a year earlier.
In addition, with advertising as its main source of revenue, Google is facing serious competition from Facebook. The sophisticated Facebook targeting with Atlas continues to take a big share of advertising budgets. The future for revenue growth appears brighter for Apple, riding on its iPhone success, than it does for Google given the competition it is facing.
The reality is that both companies, Apple and Google, can succeed and there is merit to owning both. Investors should also bear in mind that the right things are being said by new Google CFO, Ruth Porat, with regard to cutting costs, dividends and buybacks and investor optimism might be well founded if Google follows through.
Betting against Apple has proven foolhardy in the recent past and the probability is that this trend will continue going forward.