Amazon vs. Apple: Which Mega-Cap Stock is a Better Buy for the Second Half of 2021

NASDAQ: AAPL | Apple Inc. News, Ratings, and Charts

AAPL – Despite the stock market’s recent volatility on fears related to the spread of the COVID-19 Delta variant and concerns over rising inflation, we think it could be wise to invest in quality mega-cap stocks because they are expected to generate steady returns over the long run. Apple (AAPL) and Amazon (AMZN) are examples of this class of stock and should generate stable returns, dodging short-term market fluctuations. But which of these two stocks is a better buy now? Read more to find out.

Tech giant Apple Inc. (AAPL), which is known for its innovative products, such as the iPhone, crossed the $2 trillion market cap level in August last year. It has a market capitalization of $2.44 trillion currently. In comparison, with a market cap of $1.80 trillion, e-commerce giant Amazon.com, Inc. (AMZN) has been making significant advances in the cloud space via Amazon Web Services (AWS) and in the entertainment space through its Amazon Prime offerings, among others.

U.S. retail sales unexpectedly rose 0.6% in June, and several financial companies reported strong earnings earlier this month. However, concerns surrounding the spread of the highly contagious COVID-19 Delta variant, high inflation, and a decline in consumer sentiment have been raising questions about the stock market’s stability. Against this backdrop, we think it could be wise to invest in mega-cap stocks because of their impressive market dominance and solid long-term growth prospects. So, both AMZN and AAPL are good bets to generate steady returns over the long term.

AAPL has gained 12.5% over the past month, while AMZN returned 4.6%. Also, AAPL’s 23% gain over the past nine months is significantly higher than AMZN’s 9.2% returns. Furthermore, in terms of their past years’ performance, AAPL is the clear winner with 51.7% gains versus AMZN’s 19.1% returns.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On June 7, AAPL unveiled new tools and technologies designed to help developers create more engaging app experiences. Susan Prescott, the company’s vice president of Worldwide Developer Relations, said, “With the robust set of tools included in Xcode Cloud, continuing innovation in the Swift programming language, a wide range of new APIs, and even more ways to reach users—Apple’s platforms have never been stronger.”

AMZN’s AWS announced on June 11 that it would open an infrastructure region in Israel in the first half of 2023 because it was selected as a primary cloud provider for the Israeli government’s digital transformation. This is expected to enable customers to run workloads and store data in Israel, while serving end-users with  lower latency.

Click here to checkout our Retail Industry Report for 2021

Recent Financial Results

AAPL’s net sales increased 53.6% year-over-year to $89.58 billion for its fiscal second quarter, ended March 27, 2021. Its operating income grew 114% year-over-year to $27.50 billion. Its net income increased 110.1% year-over-year to $23.63 billion. Also, its EPS came in at $1.40, up 118.7% year-over-year.

AMZN’s net sales increased 43.8% year-over-year to $108.52 billion for the first quarter ended March 31, 2021. Its operating income grew 122.2% year-over-year to $8.86 billion, while its net income increased 219.8% year-over-year to $8.12 billion. Also, its EPS came in at $1.91, up 215.2% year-over-year.

Past and Expected Financial Performance

AAPL’s revenue and EPS grew at CAGRs of 9.6% and 19.8%, respectively, over the past three years. Analysts expect AAPL’s revenue to increase 25.3% for the quarter ending September 30, 2021, and 29.2% in its fiscal year 2021. The company’s EPS is expected to grow 52.1% for the quarter ending September 30, 2021, and 57.9% in its fiscal year 2021. Its EPS is expected to grow at a 17.9% rate  per annum over the next five years.

In comparison,  AMZN’s revenue and EPS grew at CAGRs of 29.5% and 87.7%, respectively, over the past three years. The company’s revenue is expected to increase 23.4% for the quarter ending September 30, 2021, and 27% in its fiscal year 2021. Its EPS is expected to grow 4.9% for the quarter ending September 30, 2021, and 33.5% in its fiscal year 2021. AMZN’s EPS is expected to grow at a 37.9% rate per annum over the next five years.

Profitability

AMZN’s trailing-12-month revenue is 1.29 times AAPL’s. However, AAPL is more profitable, with a 27.32% EBIT margin and 23.45% net income margin compared to AMZN’s respective 7.10% and 6.42% margins.

Furthermore, AAPL’s ROE, ROA, and ROTC of 103.40%, 16.90%, and 27.71%, respectively, compare favorably with AMZN’s 31.91%, 6.84%, and 10.69%.

Valuation

In terms of forward non-GAAP P/E, AMZN is currently trading at 64.82x, which is 129.2% higher than AAPL’s 28.28x. And  AMZN’s 24.36x forward EV/EBITDA is 14.9% higher than AAPL’s 21.21x.

So, AAPL is the more affordable stock.

POWR Ratings

AAPL has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. AMZN, in comparison, has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both AAPL and AMZN have a B grade for Quality. This is justified given AAPL’s 103.40% ROCE, which is 1,407.3% higher than the 6.86% industry average.  AMZN’s 31.91% ROCE is 162.6% higher than the 12.15% industry average.

AAPL has an A grade  for Sentiment, in sync with analysts’ expectations that its revenue and EPS will increase at a high  rate in the coming quarters. AMZN, in comparison, has a B grade  for Sentiment. Again, this is consistent with analysts’ expectations that its revenue and EPS will increase at a moderate rate.

Of the 45 stocks in the B-rated Technology – Hardware industry, AAPL is ranked #23. However, AMZN is ranked #15 of 74 stocks in the F-rated Internet industry.

Beyond what we’ve stated above, we have also rated both  stocks for Stability, Momentum, Value, and Growth. Click here to view all the AAPL ratings. Also, get all the AMZN ratings here.

The Winner

Both AMZN and AAPL are top mega-cap stocks and enjoy immense investor attention given their solid growth prospects and industry-leading positions. However, even though both names  are expected to gain in the long run, we think it is better to bet on AAPL now because of its lower valuation, better profitability, and impressive growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology – Hardware industry here. Also, click here to access all the top-rated stocks in the Internet industry.


AAPL shares were trading at $142.24 per share on Monday afternoon, down $4.15 (-2.83%). Year-to-date, AAPL has gained 7.54%, versus a 13.80% rise in the benchmark S&P 500 index during the same period.


About the Author: Nimesh Jaiswal


Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...


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