On Tuesday, the Dow Jones Industrial Average wiped out a 500-point gain, hitting a session-low of roughly 350 points, a fourth straight down day due to the concerns surrounding high inflation, the Russia-Ukraine war, lock-downs in China, and aggressive interest rate hikes. However, corporate earnings and the U.S. job market appear to be solid. Furthermore, consumers and businesses kept spending in a sign of underlying resilience. With a string of positive economic reports, DJIA is expected to recover in the upcoming months. So, both Cisco Systems (CSCO) and Apple Inc. (AAPL) could generate steady returns in the long term.
CSCO designs, manufactures, and sells Internet Protocol-based networking and other communications and information technology products. In addition, it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products. One of the most popular tech companies, AAPL, is known for its innovative products, such as iPhones. In addition, the company offers various services, such as Apple Arcade, Apple Music, Apple News+ and Apple TV+.
AAPL has gained 4.5% over the past six months, while CSCO has delivered negative returns. Also, AAPL’s 6.1% gain over the past nine months compares to CSCO’s negative returns. Moreover, in terms of past years’ performance, AAPL is the clear winner with 21.8% gains versus CSCO’s negative returns.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
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."
On April 28, 2022, AAPL’s board of directors declared a cash dividend of $0.23 per share of its common stock, increasing 5%. The dividend is payable on May 12, 2022, to shareholders of record as of the close of business on May 9, 2022. The board of directors also authorized an increase of $90 billion to the existing share repurchase program.
Recent Financial Results
CSCO’s net revenue increased 6% year-over-year to $12.70 billion for the fiscal second quarter ended January 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. Also, its non-GAAP EPS came in at $0.84, up 6% year-over-year.
AAPL’s net sales increased 9% year-over-year to $97.28 billion for the fiscal second quarter ended March 26, 2022. Its operating income grew 9% year-over-year to $29.98 billion. Its net income increased 5.8% year-over-year to $25.01 billion. Also, its EPS came in at $1.52, up 8.6% year-over-year.
Past and Expected Financial Performance
CSCO’s revenue and EPS grew 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 7.8% next year. Moreover, its EPS is expected to grow at 7.1% per annum over the next five years.
On the other hand, AAPL’s revenue and EPS grew at CAGRs of 14.3% and 27.3%, respectively, over the past three years. The company’s revenue is expected to increase 7.7% in the current year and 5.6% next year. Its EPS is expected to grow 9.6% in the current year and 6.7% next year. Also, AAPL’s EPS is expected to grow at 9.9% per annum over the next five years.
Profitability
AAPL’s trailing-12-month revenue is 7.49 times what CSCO generates. AAPL is also relatively more profitable, with an EBITDA and net income margin of 33.84% and 26.41% compared to CSCO’s 31.02% and 22.94%, respectively.
Furthermore, AAPL’s ROE, ROA, and ROTC of 149.27%, 21.70%, and 38.13% are higher than CSCO’s 30.08%, 9.28%, and 16.49%, respectively.
Valuation
In terms of forward non-GAAP P/E, AAPL is currently trading at 24.75x, 74.2% higher than CSCO’s 14.21x. Moreover, AAPL’s forward EV/EBITDA of 18.82x is 89.9% higher than CSCO’s 9.91x.
So, CSCO is the more affordable stock.
POWR Ratings
CSCO has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, AAPL has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
CSCO has a grade of A for Quality. This is justified given CSCO's 63.30% trailing-12-month gross profit margin, 25.3% higher than the industry average of 50.53%. On the other hand, AAPL has a Quality grade of B.
CSCO also has a B grade for Stability, in sync with its beta of 0.95. In comparison, AAPL has a C grade for Stability, consistent with its beta of 1.19.
Of the 53 stocks in the Technology - Communication/Networking industry, CSCO is ranked #6. However, AAPL is ranked #22 out of 44 stocks in the Technology - Hardware industry.
Beyond what I’ve 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
With the fast-paced reopening of industrial activities, both CSCO and AAPL are expected to gain in the long run. However, it is better to bet on CSCO now because of its higher 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 industry here. Also, click here to access all the top-rated stocks in the Technology – Hardware industry.
AAPL shares rose $0.10 (+0.07%) in after-hours trading Wednesday. Year-to-date, AAPL has declined -17.27%, versus a -17.05% 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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