Will Apple Shares Outperform Microsoft in 2014?

24/7 Wall St.

In mid-June of 2003, Apple Inc. (AAPL) sold its first iPod. By September, 10 million songs had been downloaded from the iTunes store, and by the beginning of 2004 the company's stock had lost about 1% of its value. At roughly the same time, Microsoft Corp. (MSFT) launched Windows Server 2003, and by the beginning of 2004 the company's stock had risen nearly 8%.

Since then the stock price charts look very different. Apple's share price is up nearly 5,000% since January of 2004, while Microsoft's stock is up less than 40%. But in the past 12 months, Microsoft stock has gained 35% while Apple's stock is down nearly 9%. Where should investors be looking for the most value?

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Microsoft has seen its shares rise 40% so far in 2013. The company's Xbox One becomes available for sale Friday, the first new gaming console from Redmond in nearly eight years. The stock closed at $37.40 on Thursday, and the consensus analyst price target of around $36.00 implies that the stock is at least fully valued, if not overbought. Shares have traded in a range of $26.26 to $38.22 over the past year. With a fiscal year 2015 earnings per share estimate of $2.92, it is valued at nearly 13 times next year's expected earnings.

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Apple shares are down about 2% so far in 2013. The shares have gotten a boost since the early October introduction of the iPhone 5S and 5C, but that boost did not last very long. The share price has bounced around in a narrow range between about $515 and $530 since mid-October. The stock closed at $521.14 Thursday, and the consensus analyst price target is around $580, which implies an upside of 11.3%. Shares have traded in a range of $385.10 to $594.59 over the past year. With a 2015 earnings per share estimate of $47.65, it is valued at about 11 times next year's expected earnings.

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For the 2014 fiscal year that ends in June for Microsoft and in September for Apple, the companies are expected to post earnings per share of $2.66 and $43.42, respectively. In Microsoft's case, earnings are flat, while Apple's earnings per share are estimated to rise a little more than 9%.

Microsoft will name a new chief executive officer sometime in the next few months, and it will close its $7.4 billion acquisition of the mobile phone business of Nokia Corp. (NOK). If the Xbox One is the hit that everyone thinks it will be, the company's stock could be in for another boost.

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Just on the numbers we have, Apple's stock looks like the better value going into the new year. But after the iPod, the iPhone and the iPad, everyone expects Apple to unveil the next big thing every 12 months, and the company does not try very hard to manage expectations. Face it, there is unlikely to be a next big thing in 2014. But all things considered, more analysts believe Apple is the better choice for a value investment.

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