I'm bullish on both Apple (NASDAQ:AAPL) and Intel (NASDAQ:INTC) and much of the tech sector in general, but I believe that despite the loss of Steve Jobs as Apple's CEO and Intel's lower valuation AAPL shares are still preferable as far as large-cap technology firms go. This article will evaluate the two equities side-by-side using multiple metrics.
They make a huge difference in the long run. INTC appears on almost every large-cap dividend list for a reason - it's dividend is huge for a technology company. With a 4.25% yield relative to AAPL with a complete lack of yield, INTC is obviously superior by this metric. Still, dividend-chasers are probably better off in the healthcare or energy/utility sectors. This article gives safer dividend options in healthcare, and this gives additional ideas in utilities and telecom.
You probably already know who the winner is, but let's look at the numbers. Here is Apple's revenue and operational income growth over the last 10 years.
As you can see, it's been parabolic. Recent performance has been even better. In the Q3 report, AAPL revealed that compared to Q3 of 2010 revenue has skyrocketed by 83%. Shares have skyrocketed since then - not quite doubling but increasing roughly 60% since that time. That is an incredibly impressive return from even more impressive results. Below is a 10-year look at Intel's revenue and operating income.
While Intel has recently been doing a lot better than its 2005-2009 stagnation, the growth hasn't been anywhere near the likes of Apple. It's hard to fault Intel for performing so well in a dying PC market though. Its 21% annual revenue growth noted in it's latest quarterly report is impressive, but not as good as Apple's. Also it is very questionable whether Intel can maintain the growth. Its primary business (its microprocessors) have declined 15% in revenue, which could continue given that the PC market deteriorating.
Intel is a lot cheaper than Apple on a P/E basis (9.05 versus 15.18) but the huge differences in growth and the general investor consensus say that this is a fair disparity. Still, both firms are cheap alongside the rest of the market by most metrics (due to how poorly equities have fared recently). Intel has a price to book ratio of 2.13, whereas Apple trades at 5.13. Intel clearly wins by valuation metrics, but since the stock market is constantly looking for growth Intel's valuation may not attract enough investors to offset it's questionable prospects over the next few years.
Analysts and Outlook
“We’re thrilled to deliver our best quarter ever, with revenue up 82 percent and profits up 125 percent,” said Steve Jobs, Apple’s CEO. “Right now, we’re very focused and excited about bringing iOS 5 and iCloud to our users this fall.”
-Steve Jobs in Apple's Q3 Report 2011
Apple is looking forward to this holiday season, with even further improvements to the iPhone (now releasing #5), a new version of the operating system, and the introduction of the "iCloud" which allows data to be streamed across all your Apple products. As far as the iPhones have come, they still have room to run due to continuing demand abroad and in the United States as people begin to replace their older versions of the iPhone. Analysts are generally excited about Apple too averaging a price target of $450/share, about 18% above the current price. This isn't all that impressive though, as there is much larger implied upside in other equities.
"Strong corporate demand for our most advanced technology, the surge of mobile devices and Internet traffic fueling data center growth, and the rapid rise of computing in emerging markets drove record results. Intel's 23 percent revenue growth in the first half and our increasing confidence in the second half of 2011 position us to grow annual revenue in the mid-20 percent range."
-Paul Otellini in Intel's Q2 Report 2011
Intel's forecast is strong as well, citing huge growth in hardware as the reason for the strong revenue. Still, there is relatively little fresh information. A note claims that integration of McAfee and Infineon have contributed 1 billion dollars to revenue in their first full quarter, but these results are hardly enough to offset the elephant in the room. Analysts are extremely bullish about Intel which makes the stock even less attractive in my book. They average at $26/share, an implied upside of about 30%. They had the same price target a year ago, and the stock didn't move at all whereas Apple soared to new highs. Ultimately one should take analyst targets with a grain of salt, especially with technology equities.
Apple's strength is Intel's weakness. It's been said before because it's true - the PC industry is stagnant and is beginning to shrink. The smart phone market is exploding, and is bringing a new era of technology to the world. Intel is in a terrible position if this situation becomes worse (along with Dell), and Apple will reap the benefits despite its own position in the PC market. Even if Intel pays a giant dividend and is trading at a much better value, Apple's earnings have so much more potential that the premium is worth it. Unless you absolutely have to have a dividend, Apple is a much stronger play than Intel in tech.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.