Netflix vs. Apple

Did you hear about the Internet-based company that is still hitting new highs?

I'm talking about Netflix (Nasdaq: NFLX), of course. Sure, it may be considered more of a tech-savvy mail-order company than a dot-com darling since it's ultimately about delivering rented DVDs and Blu-ray discs into your mailbox. However, where would Netflix be if it wasn't for its online queues, superb data-munching recommendations engine, and the unlimited online streaming?

And where would my portfolio be if I didn't own Netflix?

I've owned the stock since 2002, just around the time I signed up as one of its earliest subscribers. I don't even want to tell you about the carnage that I'm finding as I walk through the ruins of the rest of my portfolio. I'm just glad to see Netflix recently hitting fresh highs.

This doesn't mean that the company is peaking. That's just what happens when you run a recession-resilient business and find yourself raising your guidance at a time when other companies are slashing theirs.

Scoring points in the paint
Netflix is one of the few consumer companies that is positioned perfectly for an economic downturn. Just think about it. If discretionary income is tight, higher gas prices will keep you home. Even heading to the local multiplex or video rental store will be a drag, especially when a monthly subscription to Netflix will run you less than a night at the movies.

You also have all the recent investments in home theater systems. Between cheaper prices for LCD and plasma flat-screen TVs, the desire to upgrade before nondigital systems become obsolete next February, and the spending appeal of home theater enhancements with the economic stimulus checks, everything points to you spending more time on your living room couch.

What are you going to feed that thing? I hear it loves to eat discs, especially the ones that come in red, rectangular envelopes.

You don't have to take my word for it. Netflix itself raised its guidance last month, expecting to close the year with more subscribers. You certainly don't see rival Blockbuster (NYSE: BBI) doing that. Blockbuster has 500,000 fewer subscribers than it did six months ago, after raising prices late last year.

It shoots, it scores
Netflix is thriving even as heavies such as (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) have moved to deliver digital rentals. Even Microsoft (Nasdaq: MSFT) is now delivering digital flicks to Xbox Live users. Could it be that Apple's rare miss with the Apple TV appliance indicates that folks are perfectly happy with the way they consume filmed entertainment?

Netflix isn't living in denial. It has moved quickly to offer Blu-ray discs, offering crisp high-def quality in a features-rich optical disc platform that would take an exhaustingly long time to duplicate in digital delivery. In the meantime, Netflix has its grubby hands all over digital delivery with the unlimited streaming of select movies at no extra cost to its subscribers.

I might argue that this tournament is rigged -- Netflix is up against the black turtleneck-donning hipsters at Apple. But even that's not much of a competition. Apple isn't cheap just because it's well off its highs. Don't forget that the company disappointed investors by issuing lukewarm guidance earlier this year. This is as Netflix went on to generate a blowout quarter, only to pad those gains by upping its outlook.

The cheapest stocks I know aren't the ones hitting new lows. They are the ones positioning themselves to earn even more in the future, and that's Netflix. One begins to wonder what a company with as many as 9.5 million subscribers by the end of this year will be able to achieve.

If you're with me, head to the Netflix page on Motley Fool CAPS and select the stock to outperform the market. You're naturally welcome to disagree and pick it to tank relative to the rest of the market.

I think you'll make the right call because you've seen this movie before. You know it has a happy ending with another buzzer-beating shot.

Ready for Stock Madness? Who's going to take home the trophy? See the rest of this year's bracket.

Netflix, Apple, and are recommendations for Motley Fool Stock Advisor newsletter subscribers. Microsoft is an  Inside Value recommendation. You want a price break? A 30-day free trial subscription will take you there.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy that also comes in a red envelope.