Apple (NASDAQ:AAPL) has been the investors' favorite for years. The media constantly talks about Apple and how innovative and profitable they have become. Recently they've been making even more headlines when their market cap briefly rose above Exxon's (NYSE:XOM) and Steve Job announced he would be stepping down. They seem to be the center of attention for the markets. Is "everyone" right about Apple being the best? Are they really that unique? Can any other company even match them? I wasn't sure but after some investigation I found Intel, a company in a similar field to have very similar financials. To be fair, Apple is a great company but the price is a little too high. Sure, their continual innovations will probably provide enough growth to earn a profit for shareholders; but that's too risky for the value investor.
Intel (NASDAQ:INTC), as you probably know, designs and manufactures chips for computers. They are the primary manufacture of the processors that you use every day. Most personal computers (even Macs) use Intel processors and I don't think that will change. With their newest release of Intel i processors they have gained an even more competitive edge against rivals such as Advanced Micro Devices (NASDAQ:AMD). As a value investor, it is peace of mind to know that your company will provide solutions for never-ending needs. Intel is one of the few companies in the world that fits this criteria. Like Coca-Cola (NYSE:KO) and McDonalds (NYSE:MCD), people will always use Intel's products. I have no doubt that Apple will remain on top in their market share but competition from Microsoft (NASDAQ:MSFT), PC manufactures and Droid manufactures is definitely getting tougher.
Now onto the financials, exactly what everyone loves about Apple. Investors boast about Apple's continued high growth, return and low debt; and you can't blame them. What you can blame them for is not realizing that Apple isn't the only one. There are other great companies! Apple grows its earnings at about 56.8% a year while Intel has an annual growth rate of about 19.4%. Apple also has a return on equity of 42%-very impressive. Intel also has a high ROE at 25.91%. Intel beats Apple with a Net Margin of 25.3% which is 1.8% above Apple's Net Margin. So far both companies look great. It only gets better when you realize that Intel has a Debt/Equity ratio of .04 and Apple has no debt. Apple and Intel are returning a good amount of money and are able to grow their earnings at a high rate. They are both in very good financial health with almost no debt. Now, you may be thinking "Why are you saying invest in Intel when Apple earns more?" Apple is great and there's no debating that but as Yogi Berra once said about a famous restaurant "It's so popular, nobody goes there anymore." It is hard to make money from a stock if everyone is buying it, no matter how good it is.
Apple and Intel have an enterprise value about 5-10% below Market Cap because of their cash and low debt. This means an immediate (intrinsic) discount to buyers of either company. Definitely a plus for the value seeker. Although, Intel's P/E ratio is much lower than Apple's. Intel has a P/E of 9.1, below the industry average by about 2.5. Apple has a P/E of 15, above the industry average by 2.7. This means that although Apple is returning 42% to the company, the higher price returns only 7% (1/15) to shareholders. This return will likely rise though if the growth investors are right about Apple's future. Intel on the other hand is returning 11% (1/9.1) to shareholders. This number will also grow. From these price-adjusted returns you can see that Intel may be a better investment. It is also safer because it doesn't rely on anymore earnings growth to return the 11%. If Apple doesn't grow, then their investors will be stuck with a 7% return on earnings; not to mention that the share price will drop considerably. If there is a recession or for some other reason earnings is less than expected, Intel has a much larger margin of safety that will keep you cushioned. In addition, Intel offers a 4.2% dividend yield. Apple on the other hand, offers no dividend. To be fair, the reason Apple doesn't offer a dividend is that it uses all of its capital to continue growing at a high rate.
Intel and Apple are great companies. Apple is perfect for the growth investor and Intel is perfect for the value investor. Both will continue to innovate and dominate the market for years to come. Unlike Apple, Intel provides safety to those looking for value because of the never ending need for their product, cheap price, high profit margins and high dividends. These criteria are exactly what a value investor should look for in a company which means Intel may be right for you.
Disclosure: I am long INTC.