Tablets for both companies will continue to be growth markets, but the real money is in content, and there the market is betting heavily that Amazon will best iTunes. My view is that both companies will come out winners here, but that Apple will continue to generate healthy profit margins from its tablets even as it moves into lower price points and emerging markets. Amazon really doesn’t mind taking a loss on its tablets, and in the end the real winner will be Google Inc (NASDAQ:GOOG). Google will continue to expand its search reach as its Android operating system is given away. The market is assuming that Google’s Android will eat Apple’s iOS lunch in emerging markets, but Apple is reportedly looking at ways to get out cheaper handsets for the emerging market so don’t count them out.
In the end, you have to make a lot more rosy assumptions in the case of Amazon to justify its valuation. If projections hold, you are buying Amazon for a projected PE of 60 in 2014. Apple sells for a PE approaching single digits if you back out cash and investments — which represent about 30% of the current market cap. I recommend patience with Apple, since that cash pile will continue to grow until Apple decides to start paying higher dividends or buying shares aggresively. Apple in the past has not made huge acquisitions, but that could be another play for them. You have to be very pessimistic to not see a lot of upside at these levels for Apple stock going forward.
The article Comparing Apples to Oranges: AAPL vs AMZN originally appeared on Fool.com and is written by Erick Santos, M.D., Ph.D..
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