A popular debate on Wall Street is whether to invest in Apple Inc. (AAPL) or Google Inc. (GOOGL). Both names have been synonymous with success for quite some time, but Apple has been the more popular story as of late. Over the past year, Apple has appreciated 49.09%, which dwarfs Google’s 1.42% return. Apple also currently offers a dividend yield of 1.60% whereas Google does not offer a dividend. Furthermore, Apple is trading at just 16 times earnings while Google is trading at 26 times earnings. (For more, see: What Makes Apple (AAPL) the Most Valuable Company?)

Now consider top and bottom-line growth for both companies over the past three years (all numbers as of 5/18/15):

Apple

FY2012

FY2013

FY2014

Revenue

$156.508B

$170.910B

$182.795B

Net Income

$41.733B

$37.037B

$39.510B

 

Google

FY2012

FY2013

FY2014

Revenue

$46.039B

$55.519B

$66.001B

Net Income

$10.737B

$12.920B

$14.444B

Both impressive, but these numbers are in the past. Which company is likely to be a better investment in the future? Let’s begin by taking a look at Apple.

Apple: Competing with Itself

First take a look at two telling quotes from Apple’s most recent 10-Q: “The Company's business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease-of-use and seamless integration.” The key to that quote: “seamless integration.” Apple products operate in unison, which is the biggest draw for customers. People love simplicity. This also helps Apple maintain its margins and leads to increased potential for growth. (For more, see: The Story Behind Apple's Success.)

Quote two: “The company's strategy also includes building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.” The key to the second quote: “building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers.” In other words, Apple feels as though continued growth is a very realistic possibility. Remember this is a Securities and Exchange Commission filing, not a press release, which means the company is required by law to state the facts.

Apple’s situation is unique in that its greatest competitor is itself. It has raised the bar high. This might scare some investors, but historically Apple has continued to find ways to jump over that bar. Even if the stock were to suffer, Apple’s hefty buyback program will allow it to buy shares at cheaper prices, thereby lifting the share price, reducing the number of shares and increasing earnings per share. (For more, see: A Look at Apple's Share Buyback and Dividend.)

Apple isn’t one of those companies that is currently relying on buybacks. It believes strongly in the importance of research and development (R&D) to drive innovation. And innovation isn't a hope at Apple, it is a reality. In the company's most recent quarter, net sales increased 27% year over year, primarily thanks to the iPhone 6. The strong U.S. dollar had a negative impact, but the dollar has weakened recently, which should provide a small bump for Apple for the current quarter.

On a geographical (and segmental) basis, Apple saw increased sales everywhere expect Japan. Net sales in China skyrocketed 71% year over year. With all these impressive facts, is it possible that Google could be even more impressive? (For more, see: Investing in Apple: The Risks & Rewards.)

Google: Investing in the Future

The short answer to that question is 'no.' But Google is impressive. And thanks to a ton of capital and a highly competitive and innovative culture, Google should find a way to fuel growth once again. (For more, see: The Story Behind Google's Success.)

However, as far as the near future goes, consider this quote from the company’s most recent 10-Q: “Our revenue growth rate has generally declined over time as a result of a number of factors, including increasing competition, query growth rates, challenges in maintaining our growth rate as our revenues increase to higher levels, the evolution of the online advertising market, our investments in new business strategies, changes in our product mix, and shifts in the geographic mix of our revenues. We also expect that our revenue growth rate will continue to be affected by evolving user preferences, advertising trends, the acceptance by users of our products and services as they are delivered on diverse devices, and our ability to create a seamless experience for both users and advertisers.”

That’s not what an investor wants to read. First quarter revenue increased 11% year over year thanks to increased advertising revenue, but relying on advertising revenue is always a dangerous game. What’s interesting is that headcount increased to 55,419. A company that’s struggling or worried about the future usually doesn’t add employees. It should also be noted that R&D as a percentage of revenue has increased to 16.0% from 13.8%, which is a big jump. It would be safe to assume that Google is under promising with plans to over deliver at some point over the next few years. That might sound like a long time, but if you’re truly investing in a company, it’s actually a short period of time. (For more, see: Google: Should It Be Part of Your Portfolio?)

The Bottom Line

Apple should be a better investment for the near future. This is a company that’s doing everything right and couldn’t possibly be more loved by consumers. Better yet, its customers tend to remain loyal to the brand. Google isn’t experiencing that kind of growth and/or popularity at the moment, but its best days might still be ahead. (For related reading, see: The Story Behind Google's Success.)

Dan Moskowitz does not own shares of AAPL or GOOGL. 

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