Starbucks vs. Apple: Apple

In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out!

Look, I like a decaf venti latte with a splash of cinnamon as much as the next Fool. But I can also easily live without it. Don't ask me what I'd do without my MacBook Pro.

And I'm hardly alone. Enter any of Apple's (Nasdaq: AAPL  ) beautifully designed retail stores, and you'll see firsthand the crowds clamoring for gizmos. Teens camp out by the iPods. Dads inspect the video gear. And geeks like me are set up by the MacBooks, eagerly awaiting the arrival of the iPhone.

The audacity of premium pricing
Indeed, if there's anything that proves the Mac maker's superiority in this contest, it's the iPhone. Starbucks (Nasdaq: SBUX  ) may be able to charge $3.50 for milk and coffee, but Apple has the audacity to charge $600 for a phone.

That's an incredible risk. For example, a recent online survey from researcher Compete showed that only 1% of those interested in the iPhone would pay $500 for it. Ouch.

Yet that same survey also revealed something remarkable. If the price were right, 60% of those surveyed would switch their wireless carrier to get it. That's practically unheard of, and it speaks to why Apple asks for, and gets, a premium price for its iPods and its top-of-the-line desktop and mobile Mac models. Expect nothing less with the iPhone.

Profit by design
Why can't others do the same? Because Apple is the only electronics maker that couples insanely great design with insanely great service.

No, really. When you buy from Dell (Nasdaq: DELL  ) , you're buying a PC. Wait a few days, and it'll be shipped to you. Have a problem? Call Geek Squad or the creepy neighbor who waters his lawn at midnight and who knows something about computers. Or, worse still, wait on hold for 30 minutes to get help by phone.

When you buy from Apple, chances are you're doing it at one of more than 170 of its retail stores, which, at last count, are outperforming both Tiffany (NYSE: TIF  ) and Best Buy (NYSE: BBY  ) in sales per square foot.

And if you have a problem? Head back to the store to get personal service from one of Apple's specialists, called Geniuses.

Don't underestimate this advantage, Fool. Most often, Dell sells its customers one thing, and one thing only. But if you like your local Apple retailer, and if you get good service there, chances are that you'll go back -- for an iPod, for a gift card, for a new Mac, for a game, for ... well, you get the picture.

Creating a feel-good experience is what drove CEO Steve Jobs to view every Apple store as both a work of art and a marketing opportunity. As he told Fortune, "[Customers] feel something's a little different."

I'll say. Take New York's Fifth Avenue Cube, which accommodates more than 50,000 visitors per week. It's already a local landmark, and in an appropriate twist, it's next door to another store known for creating wild-eyed retail experiences: the FAO Schwartz toy store.

But what ultimately matters in this contest is who has the best fast break. Or, in stock speak, the most attractive valuation relative to growth prospects. Apple is the hands-down winner here, too.

Analysts give the Mac maker a fiscal 2007 PEG -- a measure that compares the P/E ratio to projected growth -- of 1.27. Starbucks, meanwhile, comes in at 1.63. A similar gulf compelled you to vote for Starbucks in the last round. Therefore, it should be enough to give the iEmpire a victory this round.

Convinced? If so, follow this link and rank Apple to "outperform" in Motley Fool CAPS. Later this week, our editors will tally your votes to determine which stocks will advance one step closer to the title.

Check out the Starbucks half of this argument, and then see all of the matchups so far.

Fool contributor Tim Beyers, who is ranked 1,269 out of more than 24,600 in our Motley Fool CAPS investor-intelligence database, wrote this article on his MacBook Pro but didn't own shares in any of the stocks mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing may be found in his blog. Starbucks, Best Buy, and Dell are Stock Advisor picks. Dell is also an Inside Value recommendation. The Motley Fool's disclosure policy is, like the old Mac Cube -- irresistibly shiny.

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