One-time competitors in personal computing led by big names and innovators Steve Jobs and Bill Gates, Apple (AAPL) and Microsoft (MSFT) are two diverse technology giants today. In fact, Apple and Microsoft stocks are the two largest by market weight in the S&P 500.
We pit these two companies against each other to determine the best stocks to buy right now. Is it time to buy Apple stock? Or is it time to buy Microsoft?
As part of this feature, we’re giving free access to both companies’ full Morningstar analyst reports for free for a few weeks. Using the reports, investors can dig into some of Morningstar’s proprietary metrics and see what our analysts are saying about each company’s business strategy, competitive advantages, valuation, and risks.
Investors can also access similar metrics on close competitors, and bull and bear situations for both Apple and Microsoft stocks. Just click on the links below to access it. There are also videos explaining how our key metrics work.
Here’s how Apple and Microsoft are currently on record, as of May 9, 2022:
- Price / fair value: 1.21,000
- Fair value uncertainty: High
- Economic moat: narrow
- Capital Allocation Classification: Typical
- Price / Fair Value: 0.78,000
- Fair value uncertainty: Medium
- Economic moat: wide
- Capital Allocation Classification: Typical
Who wins these shares for matching shares? This is based on Morningstar metrics that are most important to an investor. Let’s take a deeper look at a few of them.
Price / Fair Value Winner: Microsoft
Morningstar analysts calculate a fair value estimate for each stock they cover. The fair value estimate represents the intrinsic value of the stock, based on how much cash we think the company could generate in the future. The stock price/fair value is simply the current market price divided by the fair value estimate. A share of less than 1.0 is being traded undervalued; A stock that is trading around 1.0 is valued fairly well; A stock trading above 1.0 is overvalued.
As of this writing, we believe Microsoft stock is undervalued by about 22%, while Apple stock is overvalued by 21%. The winner from a price perspective is Microsoft.
Watch: Morningstar’s Fair Value Estimate
Uncertainty Winner: Microsoft
Morningstar’s uncertainty rating assesses the predictability of a company’s future cash flows, and therefore the level of certainty we have in estimating the fair value of a particular company. Firms with sales predictability, modest operating and financial leverage, and limited exposure to contingencies carry low uncertainty; Those with less predictable sales, high leverage, and high exposure to contingent events carry a high degree of uncertainty.
Our analysts believe Microsoft’s cash flow uncertainty is moderate, while Apple’s is high. Microsoft wins due to lower uncertainty, because we are more confident in our estimate of the fair value of this stock.
Economic moat winner: Microsoft
The Morningstar Economic Moat rating represents a maintainable competitive advantage for the company. A firm with an economic moat can stand up to competition and achieve high returns on capital for many years to come. A company whose competitive advantages we expect to last for more than 20 years has a wide moat, a company that can fend off its competitors for 10 years has a narrow moat, while a company that has no advantage or that we think will quickly dissipate has no moat.
Our analysts believe that Microsoft has created a wide economic moat, while Apple has built only a narrow economic moat. Microsoft wins on this scale.
Watch: Morningstar . Economic Trench Rating
Capital Allocation Winner: TIE
The Morningstar Capital Allocation Rating represents our assessment of how well a company manages its balance sheet, investments, and shareholder dividends. Analysts assign each company a rating out of three ratings—typical, standard, or poor—based on their assessments of how well the management team provides shareholder returns. Skilled corporate managers can make a good company even better.
Both Apple and Microsoft get our highest rating when it comes to capital allocation.
Watch: Introducing Morningstar Capital Rating Personalization
What is the best stock to buy today?
At the end of the day, the “winner” of any stock-to-share match from a Morningstar perspective is the stock that is trading at the largest discount to our estimate of fair value adjusted for uncertainty. Morningstar’s stock rating sums it up perfectly. Stocks rated 4 and 5 stars are undervalued after adjusting for uncertainty, stocks rated 3 stars are undervalued, and stocks rated with one or two stars are overvalued after adjusting for uncertainty.
Microsoft has a 4-star rating as of this writing, while Apple has a 2-star rating. The Microsoft stock is the best stock to buy today from a Morningstar perspective.
Watch: Morningstar Stock Rating