Buy Apple, Sell ExxonMobil
Even buy-and-hold investors can't afford to let their portfolios collect cobwebs. Valuations and fundamentals change perpetually, and shareholders need to know what they're holding -- and if there's more potential for growth elsewhere. Here we take a look at some stocks worth swapping.
Apple (AAPL) finally did it. By the close of trading Wednesday, Apple's market capitalization surpassed that of ExxonMobil (XOM), making the iPad and iPhone maker the country's most valuable company. The gas giant floored it toward the end of the trading day to retain its pole position, but every trading day brings a new checkered flag to keep this race interesting.
We should be fair here. Apple and ExxonMobil may now command close to $350 billion in market cap apiece, but there's a wide gap when it comes to enterprise value:
- Apple's cash-rich balance sheet gives it an enterprise value -- essentially a company's market cap plus debt minus cash -- closer to $300 billion.
- ExxonMobil's enterprise value is actually somewhat larger than its market cap.
In other words, the two companies are really closer to $40 billion apart than the neck-and-neck photo finish that the market caps suggest.
Big Tech Trumping Big Oil
However, it's easy to recommend big tech over bigger oil. Apple is growing quickly. Net sales soared 82% in its latest quarter, with earnings more than doubling. The future should be just as bright given the growing popularity of Apple's iPads, iPhones, and even its Macs. Some analysts see Apple rolling out actual smart televisions in the next year or two, so the class of Cupertino is really just starting to scratch the surface in consumer electronics.
ExxonMobil wasn't exactly a slouch. Total revenue and net earnings climbed 36% and 42%, respectively, during the same quarter. ExxonMobil also pays out a generous dividend yield of 2.7%, while Apple's Steve Jobs keeps his company's tens of billions in the vault.
However, it's hard to get too excited about a company that is essentially at the whims of gasoline prices.
Demand for fuel may grow globally in the coming years, but the trend domestically for ExxonMobil tells an entirely different story. Earlier this summer, the 13 largest automakers agreed to continue to make more fuel-efficient cars, targeting an average of 54.5 miles per gallon by 2025.
In other words, while your children -- or grandchildren -- will be lining up to buy the iPhone 19, your car will be sipping roughly half as much gasoline as it is right now.
It's All About Growth Potential
Cynics will argue that Apple won't be cool forever, and even the iPod that put the company back on the map when it was introduced a decade ago is starting to wane in popularity. However, the real driver here is iOS, Apple's mobile operating system that now powers 200 million iPads, iPhones, and iPod touch devices. The platform has created digital and cloud-based opportunities that never existed before.
While ExxonMobil is trying to squeeze more juice out of dinosaurs like all of its peers, Apple is a company that's creating its own luck.
I'll stick with Apple.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns
shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple.