Apple vs. Google

Props to you, Fools. Time and again, your judgment has been better than that of Wall Street's best.

Witness Bear Stearns (NYSE: BSC). You've refused to grant the broker more than a one-star rating in Motley Fool CAPS since November and, in doing so, presaged a fall that cost investors dearly.

You're also good at spotting a winner. Through the first year of CAPS, your top picks demolished the market. Witness five-star stocks such as CNOOC and Sun Hydraulics, for example.

How is any of this relevant to today's Stock Madness final? I'll tell you: If higher-seeded stocks -- those that you, on balance, favor most -- outperform lower-seeded stocks consistently, then your choice between Google (Nasdaq: GOOG) and Apple (Nasdaq: AAPL) is no choice at all. Apple wins. Behold:




CAPS stars (5 max)



Total ratings



Bullish ratings



Percent bulls



Bearish ratings



Percent bears



Bullish pitches



Bearish pitches



Data current as of April 7, 2008.

Apple gets four stars. Google gets three. Cut down the nets.

Hey, how about giving me my money's worth?
OK, here's more. You chose Apple over Starbucks (Nasdaq: SBUX) in the Final Four, in part, because Apple is a better allocator of capital. That, you concluded, helped to explain the very reasonable premium you'd pay to acquire shares of the Mac's daddy. Turns out the same argument is even more relevant today:





Return on capital




Return on equity




Source: Capital IQ, a division of Standard & Poor's.

The above chart shows us that Google doesn't even match Starbucks in returns on equity or capital.

How could it be that the 800-pound gorilla of digital advertising -- the company that so scares Microsoft (Nasdaq: MSFT) that it's willing to force Yahoo! (Nasdaq: YHOO) into a deal -- can't even outperform a once-great but now-ailing coffee retailer in capital allocation? A metric so significant that it virtually foreshadows market-beating returns?

Seriously, I'm asking. For as much as I love Google -- a defensive stock on par with Apple in many ways -- I'm predisposed toward excellent capital allocators in my high-growth investing, as I believe you should be.

A tasty reminder ...
Finally, a reminder. No doubt my Foolish colleague Anders Bylund is going to try to sway you with plentiful permutations of the PEG ratio. Fine. That's perfectly fair. Google is, in fact, cheaper than Apple on a PEG basis.

But look again at those returns on investment capital. I included them because stocks with high ROIC frequently trade for a premium. As they should. Apple CEO Steve Jobs is more than a visionary and an innovator, Fool. He's a massive outperformer as a steward of shareholder capital. A history of expanding the once-minute market share of the Mac speaks to Jobs' success in this regard.

And let's not forget the iPhone. One analyst projects 45 million of these devices sold by the end of 2009. Research In Motion (Nasdaq: RIMM), by contrast, had just 14 million BlackBerry subscribers as of its last quarter. Yet RIM is worth $65 billion in market value.

What would happen to Apple were it to build an iPhone operation rivaling, or exceeding, what RIM has built to date, as some expect? Certainly far more than the $134 billion in market value that it commands today. Apple, after all, has four well-positioned, high-growth businesses and more than $18 billion in cash and investments.

10 ... 9 ... 8 ... 7 ... 6 ... 5 ... 4 ... 3 ... 2 ... 1
Google is a great business with much promise. But it vastly underperforms Apple in the one metric that matters most to investors: return on capital. That may be why you've already judged it to be the better stock in CAPS, a judgment that history says we should honor.

Yet history can't resolve this contest. If, as I do, you believe the iEmpire is the better choice for your portfolio, go to CAPS and rate Apple to "outperform." If not -- if you think the Google twins can manage a buzzer-beater -- choose "underperform." Our CAPS team will tally the votes after the polls close.

Who's going to win the Apple-Google showdown and take home the 2008 Stock Madness trophy? See how we got here, and don't forget to vote in CAPS!

Apple and Starbucks are Stock Advisor selections. Microsoft and Starbucks are Inside Value picks. Sun Hydraulics is a Motley Fool Hidden Gems recommendation. The Motley Fool owns shares of Starbucks. and Rule Breakers contributor Tim Beyers, who is ranked 13,742 out of more than 95,000 participants in CAPS, didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool's disclosure policy is too tall to be shorted.