2 Reasons Why Facebook Is a Much Better Stock Than Apple

Given the valuation of both Facebook (FB) and Apple (AAPL), you’d think it is insane to consider Facebook a better investment than Apple. However, in this article, I will explain why I think Facebook is a much better stock to own right now than Apple. There are two primary reasons for my opinion and they are mentioned below.

Growth

Despite Facebook’s $340 billion+ market cap and rich valuation, I think the stock has more room to run than Apple.
As I have said numerous times before, the current market values growth stocks a lot more than value stocks with high earnings power. This is the reason why cash-generating companies that lack growth, like Apple, are valued at a very conservative P/E multiple.

On the contrary, Facebook, despite its towering market cap, is still reporting double-digit growth. The company has effectively managed to monetize platforms like Facebook and Instagram. As a result, Facebook blew past the analysts’ estimates in the latest reported quarter.

Apple, on the other hand, is struggling to grow. Since the smartphone market has saturated and the total sales dropped for the first time in Q1, Apple may struggle to move higher despite its beaten-down valuation. Apple generates over 60% of its revenue from the iPhones, and the shrinking smartphone market doesn’t bode well for its short-term future.

Better management

Tim Cook has done a great job at Apple till now. That being said, Cook is not a revolutionary CEO and is running out of ideas. Apple’s new products haven’t made the same impact in the post-Jobs era that they did before. While Cook has done very well to milk the iPhone cash cow, Apple needs another revolutionary product to propel growth, and as of now, Cook has failed to deliver.

On the other hand, Facebook has prospered under the leadership of Mark Zuckerberg. A few years ago, analysts doubted Facebook’s earnings potential and were drawing comparisons to MySpace. Zuckerberg proved the bears wrong and has proven to be a great CEO, a lot better than Cook.

Conclusion

Due to the two reasons mentioned above, I think Apple will struggle in the short-term, whereas Facebook will continue reaching new highs. Although Facebook’s valuation is rich, I think the stock deserves the premium. On the other hand, Apple will struggle to grow its revenue as the smartphone market nears saturation.
Published on May 11, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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