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Better Buy: Tesla vs. Apple

Motley Fool - Wed Feb 8, 2023

Consumer-facing stocks were battered in 2022 as rising inflation reduced demand for many companies. However, investors seem to be increasingly optimistic in the new year, with the Nasdaq Composite index up almost 15% year to date. With the market showing signs of recovery, now might be a great time to invest in solid growth stocks.

Tesla(NASDAQ: TSLA) and Apple(NASDAQ: AAPL) posted immense growth over the last five years, with the companies' leading market shares in their respective industries likely to boost their stocks over the long term. As a result, both of these stocks make compelling investments.

So is Tesla or Apple stock the better buy? Let's find out.

Tesla

Tesla investors have been on a rollercoaster over the last couple of years, with the company's stock plunging 65% throughout 2022 and soaring 54% since Jan. 1. The recent rise is primarily thanks to Tesla ramping up production in China and a promising quarterly report.

In the fourth quarter of 2022, revenue rose 37% year over year to $24.3 billion, while operating income increased 49% to hit $3.9 billion. In its fiscal 2022, the automotive company produced 1.36 million vehicles (+47% year-over-year) and delivered 1.31 million vehicles (+40% Y/Y).

Despite a promising quarter, Tesla is a tricky potential investment, as arguments can easily be made to both buy and avoid its stock. On the one hand, the car manufacturer holds a leading 18.1% market share in fully electric vehicles. And according to data from Reuters, its average net profit per vehicle is unrivaled, as seen in the chart below.

CompanyNet Profit Per Car (Q3 2022)
Tesla$9,574
GM$2,150
BYD$1,550
Toyota$1,197
VW$973
Hyundai$927
Ford-$762
Xpeng-$11,735
Nio-$19,141

Data source: Reuters

However, EV competition has soared in recent years, with many well-established automotive brands adding electric vehicles to their lineups. And when it comes to an edge on self-driving technology, Tesla seems to be falling behind, as Mercedes became the first company to offer level-three self-driving in January.

Tesla likely has a fruitful future over the long term, with its most recent quarter a promising sign. However, its success will largely depend on whether or not it can keep its lead while staving off the increasing competition.

Apple

As growth stocks go, Apple is one of the most reliable and consistent options. Even in 2022, when the Nasdaq Composite index fell 33%, the iPhone company managed to avoid the worst of the market's declines, as is evident in the chart below.

AAPL Chart

Data by YCharts

Similarly, Apple's year-to-date stock growth of about 19%, compared to Tesla's 54%, illustrates the low volatility of its shares.

The tech giant had a rocky Q1 2023, reporting a 5.5% year-over-year decline in revenue of $117.15 billion, with operating income falling 13% to $36 billion. The losses mainly stemmed from production headwinds in China and foreign exchange fluctuations, which resulted in an overpowered U.S. dollar. However, its quarterly troubles should be temporary and insignificant over the long term.

Over the past five years Apple's stock has risen about 295%, and 845% over the last decade. Alongside impressive stock growth, the company's revenue increased by 48% to $394 billion since 2018, while operating income soared 68% to $119 billion.

Along with long-term consistency, one of the biggest selling points for Apple's stock is its almost unparalleled brand loyalty, which has led it to dominate nearly any new market it enters, from smartphones to tablets to smartwatches, and even Bluetooth headphones.

Recent reports revealed the company will likely enter the virtual/augmented reality markets this year with the launch of a new headset, meaning Apple could soon be the leader of another quickly expanding industry.

Comparing forward price-to-earnings ratios, Apple's 21.54 makes its current stock price a better value than Tesla's 30.80. While Tesla likely has a long future ahead, Apple's wide range of products and plans to further diversify its lineup this year make its stock the more reliable and better buy.

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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, BYD, Nio, Tesla, and Volkswagen Ag. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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