Last week when Qualcomm (QCOM) and Samsung (GM:SSNLF) announced their smart-watches I began to wonder about all the great innovating tech companies out there, "Which is the best stock to own?" Was it going to be Qualcomm, Sony (SNE), Samsung, or Apple (AAPL)? I for one don't care for this smart-watch fad that's going on, I don't think it will last long actually and that's why I will let someone else describe the tech portion of the comparisons while I focus on the investing portion of things. These are all great technology companies with awesome innovations and pipelines of innovations which is why I have selected these companies for this comparison. With the exception of Samsung, the other three companies pay a dividend and that is what sparked my interest in doing a comparison. With all this in mind I'd like to take a moment to evaluate each of the stocks on a fundamental and financial basis to see if it's worth buying any of these companies right now for the technology sector of someone's portfolio.
EPS Growth % (1YR)
Samsung and Apple currently trade at an inexpensive trailing 12-month P/E ratio, while Qualcomm is fairly priced and Sony is expensively priced; but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratios of Apple and Qualcomm are inexpensively priced while Sony is fairly priced and I was not able to obtain any information on Samsung. In terms of earnings growth I typically like to see companies grow at double digit clips and Sony is the only one that provides that. The 1-year PEG ratio which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that Sony is inexpensively priced while Apple is fairly priced and Qualcomm is expensive (again, I was not able to obtain any data on Samsung).
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. In terms of dividends I don't really mind a small yield as long as there is a great deal of dividend growth potential and Apple clearly wins the battle on both the yield and the payout ratio. Return on assets is a very important metric because it is an indicator of how profitable a company is relative to its total assets, giving us an idea of how efficient management is at utilizing its assets to generate earnings. Generally I like to look for a value of 15% or above and only Apple meets this criteria. Return on equity is also an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. In this arena I generally look for companies with ROE's of greater than 30% and in this battle nobody wins, though Apple does come very close to 30 but does not get a point. Return on investment is an important financials metric because it evaluates the efficiency of an investment that a company makes and if an investment doesn't have a positive ROI then the investment should not be made. For ROI's I like to look at values of 25% or greater and only Apple meets this criteria.
The Post-it note I was keeping score on tells me that the score was Apple 6, Sony 2, Qualcomm 1, and Samsung 1. Apple is the clear winner and that is why I currently hold Apple in my dividend portfolio and will continue to do so. Though I'm not a fan of these smart-watches which are coming out I am a fan of the innovation, and these companies are at the forefront of innovation in the consumer space. These are all great innovating technology companies with Qualcomm immersed in supplying chips to electronic consumer good manufacturers such as Apple, Sony and Samsung. Apple, Samsung, and Sony make electronic goods that we all love and they will keep innovating to make the consumers happy. Each of these companies hold key patents for future products which should change the landscape of consumer electronic goods, but I continue to believe that Apple will be the winner.
Alternate Storyline (Potential Break-up of Sony)
I love break-up stocks because they unlock value in potentially all parts of the break-up. Though Sony lost by a big margin to Apple in the storyline above, I will be considering Sony very shortly for a different thesis (break-up story) because I do believe in break-up stories providing growth for a portfolio as I have documented early on. Recent breakup stories which have worked well for me include ConocoPhillips (COP) spinning off Phillips 66 (PSX), Abbott Laboratories (ABT) spinning off Abbvie (ABBV), and News Corp (NWSA) spinning off Fox (FOXA). Recently, activist investors (Dan Loeb) have been wanting to break up Sony into the entertainment segment and an electronics segment which I think will bode well for the company. The electronics segment will behave more like Apple and Samsung as a high growth company while the entertainment segment may behave like Disney (DIS), Fox and other content providers which aren't as high growth as the innovating tech companies mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. All Samsung data is from Yahoo Finance and all other company metrics are from finviz.com. Only you are responsible for what you trade and happy investing!