Apple Inc. (AAPL) in Cupertino, Calif., is a technology behemoth that operates as a designer, manufacturer, and marketer of smartphones, PCs, tablets, wearables, accessories, and related services worldwide. In comparison, Microsoft Corporation (MSFT) in Redmond, Wash., is a software behemoth that provides software services, solutions, and devices worldwide. The company sells its products through distributors, OEMs, resellers, or digital marketplaces. Both companies have more than $2 trillion in market capitalization.

Former U.S. President Donald Trump, at the height of his presidency, designated the four companies–MSFT, AAPL, Alphabet Inc. (GOOGL, GOOG), and Amazon.com, Inc. (AMZN)--as MAGA stocks, to highlight that their acronym was the same as the abbreviation for his presidential campaign “Make America Great Again.” All four companies had hit the trillion-dollar market at that time.

This year, the shares of many tech giants are down in price on investors’ concerns over the Fed’s plans to raise interest rates. However, the COVID-19 pandemic has demonstrated the importance of technology, and big tech might have more room to run. Bank of America Corp. (BAC) analysts see opportunity in a set of tech stocks with strong profit potential at cheaper valuations. Both MSFT and AAPL are well-established players in the industry, with immense growth potential.

Over the past year, AAPL’s stock has gained 27.1% in price, while MSFT has gained 23.8%. AAPL has declined 7.5% over the past month, while MSFT lost 1.7%. AAPL and MSFT have gained 0.7% and 3.1%, respectively, over the past five days.

But which stock is a better buy now? Let’s find out.

Latest Developments

On March 8, AAPL introduced Mac Studio™ and Studio Display™, an entirely new Mac® desktop and display. Mac Studio is powered by M1 Max and the new M1 Ultra chips for personal computers. These products might add to the company’s revenue stream.

On March 4, MSFT announced that it had completed the acquisition of Nuance Communications Inc. (NUAN), a company in the conversational AI and ambient intelligence field across industries that include healthcare, financial services, retail, and telecommunications. The acquisition might increase MSFT’s operational capability.

Recent Financial Results

For its fiscal first quarter, ended Dec. 25, AAPL’s total net sales increased 11.2% year-over-year to $123.95 billion. Its operating income rose 23.7% from the prior-year period to $41.49 billion. Its net income and EPS improved 20.4% and 25%, respectively, from the same period last year to $34.63 billion and $2.10.

For its fiscal second quarter, ended Dec. 31, MSFT’s total revenue increased 20.1% year-over-year to $51.73 billion. Its operating income increased 24.3% from the prior-year quarter to $22.25 billion. And its net income and EPS stood at $18.77 billion and $2.48, respectively, registering an increase of 21.4% and 22.2% year-over-year.

Past and Expected Financial Performance

AAPL’s revenue and net income have grown at a CAGR of 13.1% and 19.2%, respectively, over the past three years. Analysts expect its EPS to increase 2.1% for the quarter ending March 31, 2022, and 9.8% for its fiscal year 2022, but is expected to decline 3.8% for the quarter ending June 30, 2022. Its revenue is expected to increase 8.2% for its fiscal 2022. AAPL’s EPS is expected to increase 14.9% per annum over the next five years.

MSFT’s revenue and net income have grown at  CAGRs of 16% and 28.5%, respectively, over the past three years. The Street expects MSFT’s EPS to increase 7.9%, 8.8%, and 16.1% for the quarter ending March 2022, June 2022, and for fiscal 2022, respectively. And its revenue is expected to increase 14.7% for the quarter ending June 30, 2022, and 18.5% for its fiscal 2022. MSFT’s EPS is expected to increase 17.4% per annum over the next five years.

Profitability

AAPL’s $378.32 billion trailing 12-month revenue is twice MSFTs. But MSFT is more profitable in terms of its gross profit margin, EBITDA margin, and net income margin of 68.83%, 49.12%, and 38.50%, respectively, compared to AAPL’s 43.02%, 33.89%, and 26.58%.

MSFT’s ROE, ROA, and ROTC of 49.05%, 15.25%, and 21.68%, respectively, compare with AAPL’s 145.57%, 19.87%, and 37.86%.

Valuation

In terms of its forward Price/Book, AAPL is currently trading at 34.62x, which is 177.4% higher than MSFT’s 12.48x. In comparison, MSFT’s 21.45 forward EV/EBITDA multiple is 15.1% higher than AAPL’s 18.63.

POWR Ratings

MSFT has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. AAPL in comparison, has an overall rating of C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

MSFT has a Stability grade of B, which is in sync with its five-year monthly beta of 0.91,while AAPL has a C grade for Stability, justifying its 1.19 beta.

Both MSFT and AAPL have a Quality grade of B, which is consistent with their trailing 12-month EBITDA margin of 49.12% and 33.89%, respectively, which are 255.41%, and 145.21% higher than the 13.82% industry average.

In the 163-stock Software – Application industry, MSFT is ranked #19. AAPL is ranked #20 out of the 46 stocks in the Technology – Hardware industry. Click here to see the additional POWR Ratings for MSFT. To see the additional POWR Ratings for AAPL, click here.

Note that MSFT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Winner

‘MAGA’ stocks AAPL and MSFT should continue to grow given their solid market presence. However, because MSFT is relatively more stable, it might be a better bet here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software – Application industry here. View all the top-rated stocks in the Technology – Hardware industry here.

Click here to check out our Software Industry Report for 2022

AAPL shares were trading at $159.88 per share on Thursday afternoon, up $0.29 (+0.18%). Year-to-date, AAPL has declined -9.85%, versus a -7.40% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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