Can Apple Inc. (AAPL) Outperform Microsoft Corporation (MSFT)?

3. Growth
Even if your main interest is value or income investing, you do need to consider growth. At the very least, a company needs to deliver growth in line with inflation — and realistically, most successful companies need to grow ahead of inflation, if they are to protect their market share and profit margins.

How do Apple and Microsoft shape up in terms of growth?

There’s no competition: Apple may be priced like a mature stock, but it has displayed the characteristics of a growth stock over the last five years, delivering a price return of 242% as earnings rose by an average of 62% per year. Microsoft’s performance looks pretty dismal in comparison, but in reality, 7% earnings growth each year is very respectable, especially as the software giant has similar profit margins to Apple and owns products — such as Windows and Office — that millions of businesses around the globe rely on and pay to upgrade regularly.

Looking ahead, I suspect that Apple’s growth will moderate and that Microsoft’s may improve slightly, thanks to its near-monopoly position in business computing. Although Microsoft’s new smartphone and tablet offerings have not yet been sufficiently successful to pose a threat to Apple, I think they form part of a bigger plan to enable the company to maintain its hold on the global business computing market. My experience of working in big companies suggests that a companywide, centrally managed IT solution will remain a key requirement for most businesses for the foreseeable future, and only Microsoft has the installed user base, software, and large scale required to provide this.

Should you buy Apple or Microsoft?
Both Apple and Microsoft are undeniably attractive investments, offering good income and growth potential and attractively low valuations. On the face of it, Microsoft looks best for income, while Apple looks slightly better value and may deliver more dynamic growth.

Overall, I’d have to call it a draw — but I would suggest that you are not blinded by the dazzle of Apple’s fashionable products. Microsoft’s maturity and its global installed base of Windows users is a powerful asset that Apple simply doesn’t possess — and I think that Microsoft may yet have a lot more to offer patient investors.

The article Can Apple Outperform Microsoft? originally appeared on Fool.com and is written by Roland Head.

Roland Head has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft.

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