Roundtable: Google, Amazon, or Apple?

Let's go all killer, no filler! Today's question is:

Which tech titan is the best buy at current prices: Google (Nasdaq: GOOG  ) , Amazon (Nasdaq: AMZN  ) , or Apple (Nasdaq: AAPL  ) ?

We asked a bevy of Fools for their pick. Read on and then tell us what you think in the poll below:

Tim Beyers: Google is the outperformer of these three, hands down. Bing has zing, but it's Google that users trust most. That's what Microsoft (Nasdaq: MSFT  ) found when it was still known as "Kumo" -- users presented with results that were identified as from The Big G were rated higher than those derived from Bing. Brand matters.

So does the cloud. Google has retrofitted its Apps suite to work with Microsoft's Exchange and is positioning its Wave messaging system and Chrome browser as an operating system for Web-based computing, fed by a global infrastructure that could be as many as 1 million servers strong.

Matt Koppenheffer: I like all three of these companies, but whether it's horse racing, or equity investing, valuation matters and it's no good buying a good company at an inflated price.

Of the group, Amazon may have some of the best prospects for profit growth, but it also has the highest valuation by a considerable margin -- enough that I'd quickly toss it from consideration. And while Google has the lowest valuation of the three (based on expected 2009 earnings) and continues to roll out new offerings, I don't know that I'm sold on the fact that the company has a long and clear runway to huge profit growth.

That leaves us with Apple, which seems to roll out one hit product after another and is bolstering a brand image that will help it sell more of its computers. Heck, although Google's gotten the recent pub, I could see Apple giving Microsoft a run for its money as the tech titan.

Alyce Lomax: I'm taking a Rule Breaker turn: Amazon.com is the best deal among these tech survivor types. True, Amazon's trading at a much higher multiple than either Google or Apple (48 times earnings!), but Amazon's the gold standard in innovation and evolution, so don't underestimate its power over the long haul.

Amazon disrupted bricks-and-mortar retailers like Borders Group and Barnes & Noble, and it's doing it again with the Kindle. It's found more and more ways to distribute digital content in addition to physical stuff (remember Amazon offering on-demand content through TiVo (Nasdaq: TIVO  ) , for example).

Meanwhile, its continued focus on low prices resonates in good economic times and bad. It has negligible debt and copious cash on its balance sheet. Plus, unlike some company heads, Jeff Bezos doesn't seem prone to major fits of ego-tripping. (Bezos recently spent a week working -- not visiting, working -- alongside hourly employees in a Kentucky distribution center to see how it's done.) When I think of wicked smart and evolving, I think Amazon, and that's a nice moat to have.

Alex Dumortier: In terms of valuation, there is a wide gap that separates Amazon from Google and Apple, as the following table shows:

Company

Price/ FY 2009 EPS

Est. Long-Term Growth Rate

Amazon

48.3

23.4%

Apple

24.9

19.2%

Google

19.3

22.9%

Is that gap fully justified by differences in fundamental characteristics and prospects of the businesses? In my opinion, the odds are against it.

At less than half Amazon's P/E multiple, I have to select Google as the best buy among these three tech titans. Normally, I'd couch that sort of statement in extremely guarded terms -- the tech industry lacks predictability.

However, I take some comfort from Berkshire Hathaway (NYSE: BRK-A  ) Vice Chairman Charlie Munger, who had this to say about Google's "moat" (competitive advantage) in May: "Google has a huge new moat. In fact, I've probably never seen such a wide moat." Berkshire Chairman Warren Buffett added that Google's search-driven advertising business is "incredible ... I don't know how to take it away from them." That's a remarkable endorsement from two investors with near-unparalleled understanding and experience of what makes a business durably great.

While we're on the subject of best buys in this sector, one tech titan that has been dismissed by investors looks interesting. Over the past five years, eBay (Nasdaq: EBAY  ) has massively underperformed all three of our roundtable stocks. However, at less than 12 times estimated 2009 earnings per share, the online commerce giant looks ready to reverse that trend.

Anders Bylund: Apple did fine with Steve Jobs on medical leave. Amazon is a leading online retailer -- but also launching headlong into the cloud-computing space. Over time, I can see that business becoming at least as important as the main retailing operation. Both are fine companies and should outperform the S&P 500 over the next five years.

But Google will crush that benchmark. The venerable Mr. Market seems to think that Big G is all about online search, and that a changing of the guard would kill the company. That's simply not the case. Microsoft can Bing its heart out, and even if it does make headway on the search engine front -- and that's a huge "if"-- Google's advertising muscle will keep the cash flowing into Mountain View, Calif. But Google's stock is priced as if online advertising were on its deathbed already.

Rick Munarriz: I'm a big fan of all three companies -- and stocks -- but I have to go with Apple. Google and Amazon are the leaders in their fields, but they are vulnerable. The recent success of Bing proves that even a dinosaur like Microsoft can make a dent in search. Amazon has a sticky hold on its customers with its Prime memberships, but it's a moat that a committed bricks-and-mortar giant should be able to duplicate.

Apple, on the other hand, is the one company that folks are willing to pay a premium for their products. MacBooks cost more than equivalent laptops. iPods cost more than other portable media players. If Google wasn't free -- or if Amazon was more expensive than other online retailers -- would either company be relevant? Apple has, is, and will be.

Three Fools are with Google, two with Apple, and one with Amazon. What do you think? Answer our poll below and then expand on your thoughts in our comments section!

This roundtable article was compiled by Anand Chokkavelu. Anand owns shares of Berkshire Hathaway, Microsoft, and Apple. Google is a Motley Fool Rule Breakers selection. Apple, Amazon.com, Berkshire Hathaway, and eBay are Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2009, at 4:01 PM, makelvin wrote:

    I agree with Munarriz that Apple is the better pick. Even though all three companies are very good and very successful; only Apple has proven to be able to branch out to a completely different markets from what they had been doing and yet be able to dominate that market and put the incumbent leaders of that market in fear of their survival.

    They did not do that once; but twice. I don't think I can think of another company in history has ever done that. Both Google and Amazon had tried to branch into other areas, but neither one was ever successful in those new market compared to what they had been doing before.

  • Report this Comment On July 09, 2009, at 4:35 PM, agragr wrote:

    I have to agree with makelvin. I buy from Amazon when they have the lowest prices. I use Google when it's free. But I pay hard cash to buy Apple's products because they offer enough value to justify the money. And Apple is expanding from a small base in markets that are huge (4.1 billion cell phone accounts according to the ITU). Finally, remember that Apple's iPhone revenue reporting is on a subscription basis, which understates what it is achieving in the marketplace at any given time. (long on AAPL)

  • Report this Comment On July 09, 2009, at 5:32 PM, trailandsurf wrote:

    I have been an Apple fan for a long time now, but I have to say, I will probably not go back after the problems that I have had with my new Macbook Pro and Apple's responses to the issues. The famous service that used to be there is disappearing. Think I will plop down 4-5 times for a bad Apple laptop that I would for an equally bad Dell? Not likely. I may pay 1.5-2 times for the OSx system, but not more. My recent experience has also made me hold off on the new iPhone until I see what comes out with Google's Android system at the end of the year. Apple has finally started to get a bit full of itself and may head up for a while, but will eventually start to fade when it has to trim margins in order to compete.

  • Report this Comment On July 09, 2009, at 6:15 PM, DavidC102 wrote:

    I am concerned about Job's health. He recently underwent a Liver transplant and if something happens to him who will take over? And will he be as successful as Job's. That's my concern with Apple.

  • Report this Comment On July 10, 2009, at 4:40 AM, deasys wrote:

    I, too, agree with makelvin. What's amazes me is that the company can bring out a new product like the recent 13" MacBook Pro--by far the best value in notebooks today--and still maintain its stellar margins. Keep in mind that this product, in fact just about the entire product line, was updated during Jobs' absence. I think that's a testimony to how deep and effective Apple's management team is these days.

  • Report this Comment On July 10, 2009, at 8:55 AM, makelvin wrote:

    I figure that the Steve Job health question will be brought up in this topic sooner or later. :/ Well, lets discuss both scenarios to see if Apple is still a better buy compared to Google and Amazon.

    Scenario one: Steve Jobs is healthy and remain at Apple for many years to come. The question to answer is what does Steve brings to Apple and allow it to do that no one seem to be able to replicate. Steve is a technology visionary with a unique marketing skill along with his ability to seem to know what people want before they do themselves. This allows him to consistently able to branch out to other unchartered territories and still be able to dominate those areas.

    Whereas Amazon and Google are already the dominate leaders in their respective fields, these abilities give Apple virtually unlimited growth potential with no growth plateau in sight. For Amazon and Google, once you are already the dominate player in their markets, you cannot expect them to continue their growth rate of their past. They are going to or might have already reached their maximum growth plateau. To continue a strong company growth, they will have to branch out and dominate other areas like Apple. That is why Google is trying to develop Android and Chrome OS and Amazon is trying to develop Kindle; but so far, neither company have shown a good track record of a successful branch out strategy.

    Scenerio two: For whatever reason, Steve Jobs can no longer work at Apple. Apple currently has three key markets: computers, digital music and the smart cell phones. Of the three key markets, only the digital music is the true dominate leader and might be reach the growth plateau.

    The computer market might be a matured market and the market itself might no longer be growing; but Apple currently only has about 10% of that pie, it can continue to eat the rest of Microsoft's pie for a long time to come.

    The smart cell phone market is just starting, Apple will clearly have many more years of growth opportunities in this area with reaching their plateau.

    Without Steve Jobs, we should not expect Apple to be able to branch out into other market areas; but their existing key markets that they do have still have a lot to offer. One thing a good traditional business management team and a good technical team in a company can do is that it will allow them to continue to grow and dominate their existing markets they already own. That is what most good schools teaches and trains their top students to do. Apple clearly has this right now.

    So in summary, if you believe scenario one to be true, you have to be an idiot to not invest in Apple. But if you are concern about Steve Job's health, you should simply consider scenario two, which would still be a good buy compared to Google and Amazon due to their future growth potentials in their existing markets.

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