Apple vs. Google vs. Microsoft A Free For All

When evaluating your portfolio, the decision may arise what companies should I include for my information technology sector. I will be conducting a cross sectional analysis of the three most successful information technology stocks (Apple, Microsoft and Google) to give you a better idea of which one or two companies to include in your portfolio.

We all know their stories, Microsoft’s Bill Gates development of Windows, Apple’s Steve Jobs innovation of a maturing computer company and Google’s Larry Page and Sergey Brin relative search engine. Although these factors have brought these companies where they are it is now more important to evaluate where they are going

Cross Sectional Valuation

	Apple	Google	Microsoft
Current Price
52 week range	78-192	247-534	14.87-26.71
P/E	33	45.5	16.5
F. P/E	26.71	22.1	13.9
P/S	5	9.3	4.1
P/B	6.6	5.3	6.0
D Yield	0	0	1.97
ROE TTM	22.7	15.9	38.4
Projected EPS growth 5 years (yahoo)	18.02%	19.92%	10.17%
PEG	1.8	1.22	1.56
New Products	MAC OS 10, IPhone 3gs	Chrome, Chrome OS, Checkout	Windows 7, Bing, Retail Stores

Competition between the three

Apple has just purchased PlaceBase, a mapping service similar to Google Maps probably to replace Google Maps on its’ IPhone. Apple also competes with Microsoft in operating systems, MP3 players, phones and computers. Apple’s latest IPhone has been very popular this quarter with consumers and is anticipated to contribute significantly to Apple’s revenue.

Microsoft just released Bing, a search engine, operates MSN and tried to purchase Yahoo but their bid came up short. Microsoft is soon to open physical retail stores to compete with the popular Apple stores. If Microsoft’s Windows 7 is as popular with consumers as it has been with critics it could help Microsoft gain more market share.

Google’s CEO just resigned from Apple’s board of directors because Google intends to develop more products and services that directly compete with Apple. Google also developed Chrome a web browser to compete with Microsoft’s Internet explorer and Apple’s Safari. Google also has an operating system in the works Chrome OS, although there seems to be some road blocks that need addressed it could possibly develop into a strong competitive factor. Each company’s strong focus on innovation has developed into a cut throat competitive web with each company trying to stay one step ahead of the competition.

Which one should I choose?

Based on valuation ratios, Microsoft is the clear winner; that is if you focus on value and are looking for a value stock. If you are a growth investor and we use growth in our calculations Google then becomes the winner, but a good question to ask yourself is whether or not this growth is already priced into the stock and what will happen if Google fails to deliver this high growth expectations. I encourage you to do your own research before making an investment decision.

Apple

After my research, it is hard for me not to choose Apple because I love their products, but based on current valuation I may leave them out of my portfolio, because I feel their earnings may be hurt in the near future because of weak consumer spending. This decision may change after their 3Q earnings release, if they miss estimates and investors respond negatively it may be a great opportunity to buy cheap. Looking ahead Q4 earnings will be helped by Christmas sales.

Google

One thing I really like about Google is the fact they have intruded the least into Apple and Microsoft’s turf, this would lead me to believe they could surprise the world with a retail product such as an MP3 player, computer or most practical, a clean efficient operating system. Another product that will contribute to Google’s success is their Checkout system that directly competes with PayPal. I have used both Checkout and PayPal and feel Checkout is more user-friendly and has great growth potential.

Microsoft

Sometimes I feel Microsoft expands into too many product segments and should scale back and focus on making better products. I have used Bing.com and did in fact find what I was looking for when I could not find it on Google.com this happened to me twice recently. But I still find my fingers typing google.com when I have something to search. I do feel however, that Microsoft’s stock price has not matched the success and high ROE the company has provided for share holders. Even though Microsoft has pretty much stayed in the $20 range I could see them breaking this streak with a turnaround in consumer spending.

Conclusion

Deciding which to hold in your portfolio and which to exclude is a very tough decision and after much thought and analysis I am picking Microsoft and Apple. Although I feel Google could still be a good investment I have not seen any new products or services released by them that have become successful and may be over priced. Microsoft is releasing Windows 7 and should experience growth in earnings, Apple just released their new IPhone and a factor yet to be mentioned is the possibility of Apple signing a contract with Verizon for the IPhone. This would dramatically increase the IPhone’s market segment and could pay huge dividends for both Verizon and Apple.