Please ensure Javascript is enabled for purposes of website accessibility

Better Buy: Apple Inc. vs. Alphabet

By Joe Tenebruso – Apr 6, 2018 at 7:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Which of these mega-cap stocks is the best buy now?

With market caps of $850 billion and $720 billion, respectively, Apple (AAPL -1.51%) and Google parent Alphabet (GOOGL -1.40%) (GOOG -1.39%) posses a level of size and scale that only a handful of businesses in the world can claim. And as they've ascended to dominance, they've earned a fortune for their investors along the way.

But which is the better buy today? Let's find out.

Elephants standing head-to-head against each other

Apple and Alphabet are two of the biggest beasts in the public markets. We put them head-to-head to see which is the best investment from this point forward. Image source: Getty Images.

Financial fortitude

Alphabet and Apple are both powerhouse businesses, but let's take a look at some key metrics to see how they stack up in regard to financial strength.

Metric

Apple

Alphabet

Revenue

$239.18 billion

$110.86 billion

Operating income

$64.26 billion

$26.15 billion

Operating cash flow

$64.66 billion

$37.09 billion

Free cash flow

$52.32 billion

$23.91 billion

Cash & investments

$285.1 billion

$109.68 billion

Debt

$122.4 billion

$3.97 billion

Data sources: Morningstar, Yahoo! Finance. 

With nearly $24 billion in annual free cash flow and $105 billion in net cash on its fortress-like balance sheet, Alphabet's financials are a thing of beauty. Yet incredibly, Apple's cash-generating ability is even more impressive. The tech colossus produced more than $52 billion in free cash flow over the past year, and its net cash position exceeds $162 billion. So although Alphabet is one of the most financially sound businesses in the world today, Apple's cash production and balance sheet strength are simply unparalleled.

Advantage: Apple

Growth 

Apple may be the more financially powerful business, but Alphabet has enjoyed significantly higher revenue, operating income, and operating cash flow growth in recent years.

GOOGL Revenue (TTM) Chart

GOOGL Revenue (TTM) data by YCharts

Wall Street expects this trend to continue. Analysts are forecasting Apple's earnings per share (EPS) to rise by about 13% annually over the next half-decade, driven by the growth of its services business and "other products" segment, along with its massive share repurchases. Alphabet, however, is projected to increase its EPS by more than 24% annually during this same time, fueled by continued growth in its core search business and YouTube, as well as its aggressive push into cloud computing. So in terms of both recent past and expected future earnings growth, Alphabet is the clear leader.

Advantage: Alphabet

Valuation 

No better-buy discussion should take place without a look at valuation. Let's now check out some key value metrics for these tech titans, including price-to-free-cash-flow, price-to-earnings, and price-to-earnings-to-growth ratios.

Metric

Apple

Alphabet (Class A Shares)

P/FCF

16.27

30.09

Forward P/E

12.82

21.37

PEG

1.11

1.07

Data sources: Yahoo! Finance, Morningstar.

Apple's shares are considerably less expensive on both a P/FCF and forward P/E basis. And while Alphabet's stock is slightly less expensive on a PEG ratio basis -- which factors in its higher expected EPS growth rate -- it's not enough for me to give the edge over Apple here.

Advantage: Apple 

The better buy is...

Apple and Alphabet are both excellent businesses that are likely to continue to deliver strong returns to investors in the years ahead. But Apple's incredible cash-generating ability and more attractively priced stock make it the better buy today.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$150.43 (-1.51%) $-2.31
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$98.74 (-1.40%) $-1.40
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$99.17 (-1.39%) $-1.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.