Best Stock to Buy Right Now: Apple vs. Amazon


Earnings season is here, providing new sets of numbers to consider when expanding your portfolio.

Two of the top companies reporting results last week were Apple (AAPL 0.98%) And Amazon (AMZN -0.87%). Both have built immense brand loyalty among consumers and hold powerful positions in retail. Apple enjoys almost unrivaled supremacy in consumer technology products. Amazon has similar dominance in the e-commerce and cloud market.

Since 2019, Apple has climbed 349% and Amazon 96%. While past growth is no guarantee of what's to come, these companies have strong long-term prospects as they continue to expand in their respective industries. Meanwhile, Apple and Amazon both beat Wall Street forecasts for earnings per share and revenue in their most recent quarters.

But are Apple or Amazon the best stocks to buy right now?

Apple

Apple is coming out of a difficult year. Macroeconomic headwinds caught up with the company in its 2023 fiscal year (which ended September 30, 2023) and revenue fell 3%. However, results for the first quarter of fiscal 2024 (which ended December 31, 2023) showed signs that a recovery may be underway.

During the quarter, Apple's net sales rose 2% year over year to $120 billion, beating analysts' expectations by more than $1 billion and ending a streak of four straight quarters of drop in income. At the same time, its profit reached $2.18 per share, compared to expectations of $2.10 per share.

Still, outperforming estimates weren't enough to assuage investors' concerns about its iPhone business. Smartphone sales grew 6% in the first quarter of 2024, but fell 13% in China. This country has tightened restrictions on the iPhone, threatening sales in one of the most crucial markets for Apple. China accounts for approximately 17% of its product sales.

As a result, Apple stock fell nearly 4% following the February 1 earnings release.

However, recent challenges are why it's crucial to maintain a long-term perspective with proven growth stocks like Apple. The company has a highly lucrative digital services business and is investing heavily in growing markets like artificial intelligence (AI).

Additionally, the technology company reached nearly $100 billion in free cash flow last year. It has the necessary funds to overcome the current difficulties and continue to invest in its activity.

Amazon

Wall Street appears to have had the opposite reaction to Amazon's earnings release. Shares of the e-commerce giant rose nearly 10% after reporting its fourth-quarter 2023 results on February 1.

During the quarter, Amazon's revenue rose 14% year over year to $170 billion, beating consensus forecasts by nearly $4 billion. At the same time, its earnings per share came in at $1, compared to expectations of $0.80.

Much of Amazon's meteoric growth has come from its e-commerce business. Its North American segment reported operating income above $6 billion, a significant improvement from losses of $240 million in the year-ago quarter.

Amazon's fourth quarter capped a year of exceptional growth. After suffering sharp declines in 2022 as inflation spikes dampened discretionary consumer spending, the company has managed an impressive turnaround.

As a result, Amazon's stock is up 63% year-over-year, compared to a 28% rise in Apple's stock price. During the same period, Amazon's free cash flow soared 427% to $17 billion. Apple's total free cash flow is higher, but is down just over 1% over the past 12 months.

Amazon is on a promising growth trajectory, with solid retail growth and a highly profitable cloud business.

Are Apple or Amazon the best stocks to buy right now?

Comparing the forward price-to-earnings (P/E) ratios of these companies, Apple's 28 versus Amazon's 48 makes the iPhone company's stock look much better valued. Forward P/E is a valuation metric calculated by dividing a company's stock price by its estimated future earnings per share. In general, the lower the number, the better the value.

However, the chart below shows that their valuations are more complex than that.

Data by Y charts.

This chart shows that Apple's profit could reach almost $8 per share over the next two fiscal years, and Amazon's could reach just under $7 per share. Multiplying these numbers by the companies' forward P/E ratios yields stock prices of $218 for Apple and $317 for Amazon.

Based on their current positions, these projections would see Apple's stock price rise 17% by fiscal 2026, while Amazon stock rises 84%.

Therefore, Amazon's action is obvious in a decision between these two companies. The tech giant is on a growth path too good to ignore, making it the best stock to buy right now.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon and Apple. The Motley Fool has a disclosure policy.



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