Apple Inc. (AAPL) and Amazon.com, Inc. (AMZN) are two of the world’s top tech giants. Besides iPhones, AAPL is  known for its iPad, Mac, iPod, Apple Watch, and Apple TV, among other products. AMZN, which is the world’s largest online retailer, is also dominating the cloud computing space through its Amazon Web Services (AWS).

While both AAPL and AMZN have witnessed steady demand growth for their products and services over the years, that  growth has been accelerated amid the pandemic as people have relied on their products  to get their work done remotely and to seek virtual entertainment experiences.  Because  the remote lifestyle is expected to continue even with an economic recovery and cessation of lockdowns, both AAPL and AMZN are expected to witness steady demand for their offerings.

While AAPL has returned 429% over the past five years, AMZN has gained 443.2%. In terms of past-year performance, AMZN is a clear winner with 67.4% returns versus AAPL’s 60.4%. But which of these two stocks is a better buy for 2021? Let’s find out.

Latest Movements

AAPL announced on January 5, that Monica Lozano, the president and CEO of College Futures Foundation, had been elected to the company’s board of directors. On December 14, the company announced the availability of Apple Fitness+, the first fitness experience built around Apple Watch. It seamlessly incorporates key workout metrics users love from Apple Watch directly to iPhone, iPad, and Apple TV.

Cardio fitness notifications became available on AAPL’s watch on December 14. It is designed to send a notification to the user if their cardio fitness level falls within the low range. Also in December, AAPL announced the launch of AirPods Max. It  combines a custom acoustic design, H1 chips, and advanced software to power computational audio for a breakthrough listening experience with Adaptive EQ, Active Noise Cancellation, Transparency mode, and spatial audio. It became available on December 15, 2020.

AMZN announced its first-ever purchase of eleven Boeing 767-300 aircraft this month. The purchases include seven aircraft from Delta and four  from WestJet, which are expected to join the network by 2022. The company also announced its plans to open its first fulfillment center in the state of Louisiana in Carencro last year. On the same date, AMZN  also announced its plans to open two new fulfillment centers and a new delivery station in San Antonio, Texas.

In December , AMZN announced its broadcast crews and shoulder programming for a week-long NFL Holiday Blitz for its prime members. It also offered an exclusive broadcast of San Francisco 49ers at Arizona Cardinals.  Last year, AMZN announced that customers can make returns until January 31, 2021 for items shipped between October 1, 2020 and December 31, 2020, making shopping even more stress free amid the holiday season. The company also made easier at more than 500 Whole Foods Market locations across the country with a new no-box, no-label return option.

Recent Financial Results

AAPL’s total net sales increased 8.4% sequentially to $64.7 billion for its fiscal 2020 fourth quarter ended September 26, 2020. While product sales increased 7.8% sequentially to $50.15 billion, services revenue increased 10.6% sequentially. Its net sales in the U.S. amounted to $30.7 billion accounted for 47.4% of total net sales. iPhone sales accounted for 40.9% of total net sales. And its net income increased 12.6% sequentially to $12.67 billion, yielding EPS of $0.73, which surpassed the Street’s estimate by 4.3%.

AMZN’s net sales for the third quarter ended September 30, 2020 increased 37.4% year-over-year to $96.15 billion. Net sales by s Amazon Web Services (AWS) increased 29% year-over-year to $11.60 billion. And net sales from North America, which accounted for nearly 62% of the net sales, increased 39.2% year-over-year to $59.37 billion. Its net income increased 196.7% year-over-year to $6.33 billion, and its EPS increased 192.4% year-over-year to $12.37.

Past and Expected Financial Performance

AAPL’s revenue and EPS grew at a CAGR of 6.2% and 12.5%, respectively, over the past three  years. Also, EBITDA grew at a CAGR of 2.7% over the same period.

Analysts expect AAPL’s revenue to increase 16% for the quarter ended December 31, 2020, 26.8% for the quarter ending March 31, 2021, and 15.6% in 2021. The company’s EPS is expected to grow 12% for the quarter ended December 31, 2020, and 22.3% in 2021. Moreover, its EPS is expected to grow at a rate of 12.9% per annum over the next five years.

In contrast,  AMZN’s revenue and EPS grew at a CAGR of 29.3% and 105.8%, respectively, over the past three  years. Also, its EBITDA increased at a CAGR of 50.1% over the same period.

The  market expects AMZN’s revenue to increase 36.7% for the quarter ended December 31, 2020, 26.3% for the quarter ending March 31, 2021, and 18.4% in 2021. The company’s EPS is expected to grow 10.8% for the quarter ended December 31, 2020 and 30.4% in 2021. Moreover, AMZN’s EPS is expected to grow at a rate of 32.8% per annum over the next five years.

Profitability

AMZN’s trailing-12-month revenue is 1.27 times AAPL’s $274.51 billion. Moreover, AMZN is slightly more profitable, with a gross margin of 40.2% versus AAPL’s 38.2%.

However, AAPL’s ROE and ROA of 73.7% and 12.5%, respectively, compare favorably with AMZN’s 25% and 5.2%, respectively.

Valuation

In terms of forward P/E, AMZN is currently trading at 89.42x, nearly 181% more expensive than AAPL, which is currently trading at 31.82x. However, APPL is slightly more expensive both in terms of trailing-12-month P/S (8.04x versus 4.45x) and forward PEG (2.84x versus 2.58x).

Again, in terms of trailing-12-month price/cash flow, AMZN’s 28.17x is 6.3% higher than AAPL’s 26.51x.

Thus, AAPL is the more affordable stock.

POWR Ratings

While AAPL is rated “Buy” in our proprietary POWR Ratings system, AMZN is rated “Neutral.” Here are how the four components of overall POWR Rating are graded for AAPL and AMZN:

AAPL has an “A” for Trade Grade, a “B” for Buy & Hold Grade, and Industry Rank, and a “C” for Peer Grade. It is currently ranked #24 of 52 stocks in the Technology – Hardware industry.

AMZN holds a “C” for Trade Grade, a “B” for Buy & Hold Grade, and Industry Rank, and a “D” for Peer Grade. It is currently ranked #34 of 69 stocks in the Internet industry.

The Winner

Both AAPL and AMZN are good investment bets considering their market dominance and continuous product innovations. However, AMZN is currently facing antitrust allegations and federal scrutiny by the U.S.  government and European Union authorities, casting uncertainty regarding the long-term prospects of the company. Thus, AAPL appears to be a better buy at a lower valuation based on its superior financials.

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AAPL shares were trading at $132.03 per share on Wednesday afternoon, up $4.20 (+3.29%). Year-to-date, AAPL has declined -0.50%, versus a 2.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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