In this piece, I evaluated two of the Magnificent Seven stocks, Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL), using TipRanks’ Comparison Tool below to see which is better. A closer look suggests bullish views for both Apple and Alphabet.
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Of course, neither company needs an introduction, but Apple designs and sells smartphones, computers, tablets, wearables, and other devices and offers a variety of services to support its devices. Alphabet is the parent company of search giant Google, which accounts for the vast majority of its revenue.
Shares of Apple are off 6% year-to-date but up 5% over the last year, while Alphabet stock has surged 20% year-to-date, extending its one-year gain to 55%.
Alphabet’s year-to-date gain puts it roughly toward the middle of the Magnificent Seven in terms of share-price performance. Meanwhile, Apple has lagged most of the group year-to-date, excluding Tesla (NASDAQ:TSLA).
The fact that both companies are part of the high-flying Magnificent Seven sets them apart from the rest of their respective sectors. However, a closer look at their recent earnings reports provides some critical updates for both companies’ valuations.
Apple (NASDAQ:AAPL)
At a price-to-earnings (P/E) ratio of 28.3x, Apple is trading in line with its five-year mean P/E of 28.1x. The slightly lower forward P/E of 26.7x suggests that analysts are expecting a small increase in earnings down the road, demonstrating that the iPhone maker has matured a lot since its growth-stock days. Given Apple’s long-term, steady-Eddie track record, upcoming catalysts, and a key technical factor, a bullish view seems appropriate.
Apple stock slipped 1% on Monday after Warren Buffett revealed at Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)’s annual meeting on Saturday that he had taken some profits in the iPhone maker, hinting at tax-related concerns. However, he also said that he expects to continue to hold Apple shares for many years and that Apple remains Berkshire’s largest position.
Despite Monday’s drop, Apple shares remained up 7% over the last five days after surging following the latest earnings report. Investors essentially ignored the plummeting iPhone sales and focused instead on the positive outlook. We’ve been seeing this trend in more earnings reports recently, as investors penalize companies for weak outlooks despite robust earnings results.
In its most recent quarter, Apple posted adjusted earnings of $1.53 per share on $90.75 billion in sales, versus the consensus estimates of $1.50 per share on $90.37 billion in revenue. iPhone sales tumbled 10% year-over-year to $45.96 billion, accounting for about half of the company’s total sales.
Meanwhile, Services revenue rose 14.2% year-over-year to $23.9 billion. Critically, Apple’s guidance for the June quarter called for revenue growth in the low-single digits versus expectations of another decline in sales.
Aside from the guidance surprise, investors also probably rewarded Apple for its massive share-repurchase authorization of $110 billion, which could serve as a key catalyst at a time when the stock is underperforming.
One other positive catalyst we can look forward to is the company’s Worldwide Developers Conference in June, which could bring some upside for its stock if the next version of iOS brings significant artificial intelligence features as expected.
The last 12 months have been bumpy for Apple stock, which has approached $200 several times — only to retreat just shy of that level. Thus, at its current price of around $180 a share, there’s plenty of room left before that $200 resistance level.
In fact, the other catalysts mentioned above suggest Apple stock could break through that resistance level in the near term, but even if it doesn’t, the iPhone maker’s long-term share-price gains make its stock a keeper, in my view.
What Is the Price Target for AAPL Stock?
Apple has a Moderate Buy consensus rating based on 19 Buys, 12 Holds, and one Sell rating assigned over the last three months. At $204.38, the average Apple stock price target implies upside potential of 12.05%.
Alphabet (NASDAQ:GOOGL)
At a P/E of 26.2x, Alphabet is trading nearly in line with its five-year mean P/E of 27x. The forward P/E is 21.6x, suggesting a solid increase in earnings, going forward. Given its relatively stable valuation over the last five years, a stellar first quarter, and expected future earnings growth, a long-term bullish view seems appropriate.
For its latest quarter, Alphabet reported adjusted earnings of $1.89 per share on $80.5 billion in revenue, a blow-out quarter versus the consensus estimates of $1.51 per share on $78.75 billion in revenue. Further, net income soared 57% year-over-year to $23.7 billion.
While Alphabet is expected to continue putting up strong growth quarter after quarter, the latest results are outstanding because they come on top of an already massive base. Thus, it’s no surprise that Alphabet stock soared the most since 2015 after the late-April earnings release.
In fact, the shares hit a new record high following the latest earnings release. In addition to the robust beats on both the top and bottom lines, investors were likely pleased with the introduction of a dividend and another $70 billion in share-repurchase authorization.
On the earnings call, Alphabet CEO Sundar Pichai highlighted the company’s “AI-first” strategy since 2016, and the latest quarterly results demonstrate how those efforts have been paying off. While there were some hiccups with the early versions of its AI model, the company appears to have already ironed out most of the problems with it.
What Is the Price Target for GOOGL Stock?
Alphabet has a Strong Buy consensus rating based on 31 Buys, seven Holds, and zero Sell ratings assigned over the last three months. At $189.79, the average Alphabet stock price target implies upside potential of 10.8%.
Conclusion: Bullish on AAPL, Long-Term Bullish on GOOGL
At their current valuations, both Alphabet and Apple stock look reasonably valued, and their earnings will continue to grow for years to come. Thus, both stocks look like safe long-term holdings, although Apple is the winner of this pairing due to the potential for greater share-price gains sooner than Alphabet.
Unlike Apple shares, Alphabet stock has largely been marching up and to the right over the last year, albeit with small, temporary dips along the way. Meanwhile, Apple stock has lagged behind the other Magnificent Seven names, suggesting that a breakup to the upside may not be far off, especially given the catalysts outlined above.
