Tech behemoth Apple Inc. (AAPL) in Cupertino, Calif., is known for its innovative products, such as iPhones. In addition, the company offers numerous services that include Apple Arcade, Apple Music, Apple News+ and Apple TV+. It has a $2.92 trillion market capitalization. In comparison, with a market cap of $226.94 billion, Cisco Systems (CSCO) in San Jose, Calif., designs, manufactures, and sells Internet Protocol-based networking and other communications and information technology products. In addition, it provides infrastructure platforms, including networking technologies for switching, routing, wireless, and data center products.
Concerns surrounding multi-decade high inflation, Russia’s invasion of Ukraine, and rising crude oil prices have raised questions about the stock market’s stability. In addition, after announcing its first interest rate hike in more than three years, the Federal Reserve is expected to get more aggressive with rate increases to fight inflation. Furthermore, the United States imposed a new round of sanctions on Russia on Wednesday. Against this backdrop, it could be wise to invest in mega-cap stocks because of their impressive market dominance and solid long-term growth prospects. So, both AAPL and CSCO could generate steady returns in the long term.
AAPL stock has gained 8.1% in price over the past month, while CSCO has negative returns. Also, AAPL’s 19.1% gain over the past nine months is significantly higher than CSCO’s 2.6% returns. Furthermore, in terms of the past years’ performance, AAPL is the clear winner with 34.6% gains versus CSCO’s 5.5% returns.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On Jan. 27, 2022, AAPL’s board of directors declared a cash dividend of $0.22 per share of the company’s common stock. The dividend was payable on February 10, 2022, to shareholders of record as of the close of business on February 7, 2022.
On March 1, 2022, CSCO and Rakuten signed a strategic agreement to accelerate the open RAN and Telco cloud market. Jonathan Davidson, Executive Vice President and General Manager, Mass-Scale Infrastructure Group, Cisco, said, "Together with Rakuten Symphony, we have the unique opportunity to offer global service providers an alternative to legacy RAN, with a turnkey option to transform their networks to be more intuitive and automated to support the ever-evolving needs for connectivity."
Recent Financial Results
AAPL’s net sales increased 11.2% year-over-year to $123.95 billion for its fiscal first quarter, ended Dec. 25, 2021. Its operating income grew 23.7% year-over-year to $41.49 billion. Its net income increased 20.4% year-over-year to $34.63 billion, and its EPS came in at $2.10, up 25% year-over-year.
CSCO’s net revenue increased 6% year-over-year to $12.70 billion for its fiscal second quarter, ended Jan. 29, 2022. The company’s non-GAAP operating income grew 6% year-over-year to $4.40 billion, while its non-GAAP net income came in at $3.50 billion, representing a 6% year-over-year increase. Its non-GAAP EPS came in at $0.84, up 6% year-over-year.
Past and Expected Financial Performance
AAPL’s revenue and EPS have grown at CAGRs of 13.1% and 25.7%, respectively, over the past three years. The company’s revenue is expected to increase 8.3% in the current year and 5.6% next year. Its EPS is expected to grow 10% in the current year and 6.5% next year. Also, AAPL’s EPS is expected to grow at 10.3% per annum over the next five years.
In comparison, CSCO’s revenue and EPS have grown at CAGRs of 0.5% and 0.7%, respectively, over the past three years. Analysts expect CSCO’s revenue to increase 6.1% in the current year and 5.3% next year. The company’s EPS is expected to grow 6.8% in the current year and 8.4% next year. Furthermore, its EPS is expected to grow at 7.1% per annum over the next five years.
Profitability
AAPL’s trailing-12-month revenue is 7.34 times CSCO’s. AAPL is also relatively more profitable, with EBITDA and net income margins of 33.89% and 26.58%, respectively, compared to CSCO’s 31.02% and 22.94%.
However, AAPL’s 145.57%, 19.87%, and 37.86% respective ROE, ROA, and ROTC are higher than CSCO’s 30.08%, 9.28%, and 16.49%.
Valuation
In terms of forward non-GAAP P/E, AAPL is currently trading at 27.91x, which is 76.9% higher than CSCO’s 15.78x. Furthermore, AAPL’s 21.12x forward EV/EBITDA is 90.6% higher than CSCO’s 11.08x.
So, CSCO is the more affordable stock.
POWR Ratings
AAPL has an overall rating of C, which translates to Neutral. In contrast, CSCO has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
CSCO has a grade of A for Quality. This is justified given TSM's 30.08% trailing-12-month ROCE, 312.4% higher than the industry average of 7.30%. On the other hand, AAPL has a Quality grade of B.
AAPL has a C grade for Stability, consistent with its beta of 1.19. In comparison, CSCO also has a B grade for Stability, in sync with its beta of 0.95.
Of the 54 stocks in the Technology - Communication/Networking industry, CSCO is ranked #6. However, AAPL is ranked #19 out of 45 stocks in the Technology - Hardware industry.
Beyond what I have stated above, we have also rated the stocks for Sentiment, Growth, Value, and Momentum. Click here to view all the CSCO ratings. Also, get all the AAPL ratings here.
The Winner
Both CSCO and AAPL are top mega-cap stocks and enjoy immense investor attention, given their solid growth prospects and industry-leading positions. However, even though both stocks are expected to gain in the long run, we think it is better to bet on CSCO now because of its better stability and lower valuation.
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 other top-rated stocks in the Technology - Communication/Networking here. Also, click here to access all the top-rated stocks in the Technology - Hardware industry.
AAPL shares were trading at $170.25 per share on Friday morning, down $1.89 (-1.10%). Year-to-date, AAPL has declined -4.00%, versus a -5.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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