The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment.and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."

But, please, make no mistake -- "Stock Madness 2005" is a GAME!

Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn.and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.

Apple Computer (NASDAQ:AAPL)
Cupertino , Calif.
52-week low-high: $12.75-$45.44
$33.4 billion market cap

By Bill Mann (TMF Otter)

A bias: Apple should never lose to any company that counts among its assets a large fleet of step vans.

That's the prospect here, Apple has to get through Snap-on for a trip to the Sweet 16. Let's make clear the difference between the two: Snap-on just released a lifestyle magazine for technicians, as James Early described in his first round game. Apple doesn't have to. In effect, this is an inspired matchup.

Each company produces desire in its customer base: There's Snap-on tools, then there's everything else. There are Apple computers, iPods and the like, and then there is everything else. But where there are reasonable substitutes for Snap-on, I propose that Apple's products tend toward the iconoclastic. You can find plenty of Snap-on substitutes, including Danaher (NYSE:DHR), which has made huge inroads among gearheads with its Matco line. Is there a company anywhere making inroads into any one of the Apple lines? Not at this time.

Both Apple and Snap-on struggled through the early part of the decade. The reason Apple wins is that its restructure has centered on entirely new product lines, which have had (and will continue to have) a "halo effect" on all of its related products. The biggest driver here has been the iPod, of course, but it isn't very hard to get from the iPod Shuffle to additional, innovative products such as an iPod housed on a wristwatch, or phones, or even, as reports, a high definition television platform based on Apple's QuickTime.

Snap-on is still clawing its way through its restructure, closing down local branches and making layoffs at every level. Those are things that a company that is righting itself must do, of course, but there's a big difference between "righting" and "right."

One's right. It's Apple.

Bill Mann owns none of the companies mentioned in this article.

Snap-on (NYSE:SNA)
Pleasant Prairie, Wis.
52-week low-high: $27.15-$35.40
$1.8 billion market cap

By James Early

What's the definition of an investment? OK, hold that thought.

Listen, I'm writing this on a brand new Mac. Sure, it's a little slow, and it crashes now and then, but I do really enjoy it and as a design freak will likely stay with the brand.

I wouldn't say the same as a stockholder. Apple's partied hearty with the in-your-face success of the iPod recently. But investing is about the future, remember.

iPod nation? The stock's price seems to think so, but I seem to remember this isn't the first time Apple's been out on top with a superior product and got left in the dust by its own head-in-the-sand views about licensing.

Of course, to be fair, you wouldn't guess any downturn is coming from watching the stock price lately. Fueled by expectations of perma-domination, it's managed to inflate itself from a split-adjusted $12.75 to $42.50 in the past year.

I used to work in the automotive industry, and I can tell you firsthand that Snap-on tools are the branding equivalent of Mac and Microsoft (NASDAQ:MSFT) rolled into one. The stock, however, has had a rough, or at least bland, time lately, with the smoke still clearing from some restructuring efforts that haven't yet hit escape velocity. But this is a stock with the best yet to come.

While you wait, you enjoy a potent 3.2% dividend yield. And what does Apple give you? How about 0%, despite a huge $6.5 billion cash hoard? Why don't they give any back to the shareholders? Isn't returning cash to shareholders the whole point of a company in the first place?

Is there a risk with Motley Fool Income Investor recommendation Snap-on? Absolutely. But without risk you wouldn't have value. And conversely, without value in a stock, you could actually be looking at a lot of risk

Let's peek at some key valuation figures, along with some others, courtesy of Yahoo!:

Snap-on Apple
EV/EBITDA 9.8 34.8
Trailing P/E 22.4 68.2
Forward P/E 16.1 33
52-week change 2.65% 233%
Dividend yield 3.20% 0%

They speak for themselves, and sure, valuation in its whole encompasses a world of additional factors, but the bottom line is this: The burden of proof rests heavily on Apple's shoulders. The market has rewarded it handsomely, to the point that it can only meet expectations or fail.

Personified, Snap-on would be the strong, silent type, with enough lingering B.O. to make it smell bad enough for the prissy crowd to stay away. The savvy investors, meanwhile, know to jump in before the best news comes to a stock -- once it does, it's usually too late to join the profit party. Apple's had quite a party. Up next is Snap-on's.

A stock's price already incorporates expectations. Meeting them doesn't move a stock, at least not by much. Surprises do. Where do you think more potential for surprise is lurking?

James Early owns no securities mentioned in this article.

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