Warren Buffett and I don't have many things in common. He's much older than I am. He's just a wee bit wealthier, too. However, we do like some of the same stocks.
Apple (AAPL 0.96%) ranks by far as the largest stock in Buffett's Berkshire Hathaway portfolio. It's also easily the biggest individual stock in my personal portfolio.
I've owned Apple for years. The stock has delivered tremendous returns for me. I expect that it will continue to be a long-term winner. However, if I had to choose between Apple and Amazon (AMZN 2.61%) right now, the nod would definitely go to Amazon. Here are three compelling reasons why Amazon stock is a smarter pick than Apple in 2023.
1. Valuation
Both Apple and Amazon have seen their share prices fall significantly. However, Amazon stock has been hit much harder. While Apple's shares are down 30% over the last 12 months, Amazon has declined nearly 50%. This steep sell-off has given Amazon its most attractive valuation in years.
NASDAQ: AMZN
Key Data Points
Sure, Apple's forward price-to-earnings (P/E) ratio of 21 is a lot lower than Amazon's multiple of 41. However, anyone who has followed Amazon for a while knows that the company's earnings can be deceiving because it invests so heavily in growth.
Amazon's price-to-sales (P/S) multiple is the lowest it's been since 2015. The stock also trades at a historically low valuation based on projected cash flow. Meanwhile, Apple's P/S multiple has fallen but remains above the level from early 2020.
2. Likelihood of a new bull market
The S&P 500 has fallen by 19.4% or more seven times in its entire history -- including the 2022 decline. The index has soared back by 20% or more in the year following such a steep decline since 1937. If a new bull market is indeed likely sometime this year, I think that Amazon is in a position to deliver a stronger rebound than Apple.
My reasoning is based in large part on Amazon's bigger drop over the past 12 months. Because Amazon has fallen harder than Apple has, it has more room to run when conditions improve.
More importantly, though, Amazon's performance throughout most of 2022 was more heavily influenced by macroeconomic factors than Apple's was. High inflation and fuel prices directly impacted Amazon's growth last year. Consumers cut back on spending. Organizations using Amazon Web Services (AWS) sought to lower their spending because of economic uncertainty.
A new bull market would signify that investors expect better days ahead. That should work to Amazon's benefit even more than it will for Apple.
3. Near-term growth opportunities
I definitely believe that Apple has solid long-term growth opportunities. The increased adoption of 5G and new augmented reality capabilities should boost iPhone ecosystem sales. However, I think that Amazon has more tangible near-term growth opportunities.
NASDAQ: AAPL
Key Data Points
AWS is Amazon's most important growth engine. If a recession is avoided or we only have a brief, mild one, customers could quickly resume their migration of apps and data to the cloud.
Two pending acquisitions represent especially important growth markets for Amazon. The buyout of One Medical for $3.9 billion is a significant step for Amazon in going after the huge healthcare opportunity. Amazon's deal to purchase iRobot for $1.7 billion expands the company's presence in the home device market.
Both Amazon and Apple would likely benefit from increased advertising spending if a major economic downturn is avoided. But Amazon should enjoy an even greater tailwind than Apple because it operates the third-largest digital advertising platform. Amazon's ad business has lots of room for additional growth.
