Stock Market Bake Off! Featuring Apple, Google, Facebook, Amazon, and Microsoft
Who will take first place?
Let’s have some fun today.
Imagine you are looking to invest some money into a good company and someone says, “you should check out some of those big tech companies that have done so well.”
You do some research and like a lot of the names you see but are ultimately down to Apple, Google (or Alphabet for all you corporate naming purists), Facebook, Amazon, and Microsoft. Instead of just spreading out your investment you want to keep it simple and choose just one stock - ideally, the best one! But…how?
There are a lot of ways to choose a stock and there is no right way or best way. Some people just like the name of a company or a product, invest, and outperform the very best investors who spend their professional lives researching good stocks.
Instead of throwing darts at a dartboard and hoping for the best, you want to do at least a little bit of research to feel more comfortable. You know each of the five companies well enough from daily life and the news, so you feel fine from a qualitative perspective. Now, you want to do some quantitative analysis and choose five popular metrics to compare the five stocks:
Price-to-Earnings to assess valuation
Return on Equity to assess return on capital
Gross Margin to assess profitability
Net Profit Margin to also assess profitability
Debt-to-Equity to assess leverage
You don’t want to make things complicated here, so you decide to just use a basic scoring system. If a stock has the best metric for a given comparison, they get five points. Second place gets four points and so on down to last place, which gets one point. With that approach in place, the bake off begins:
Starting with valuation, it’s a tight race between Apple, Google, and Facebook but Amazon is just way behind. After round one, the score stands as follows:
Apple: 3 points
Google: 4 points
Facebook: 5 points (Leader)
Amazon: 1 point
Microsoft: 4 points
Apple is the clear winner on this one! Now the score stands:
Apple: 8 points (Tied Leader)
Google: 5 points
Facebook: 8 points (Tied Leader)
Amazon: 3 points
Microsoft: 6 points
Round three shows Facebook with another knock-out punch and Amazon barely hanging on!
Apple: 10 points
Google: 8 points
Facebook: 13 points (Leader)
Amazon: 4 points
Microsoft: 10 points
Once again, Facebook demolishes profitability. It’s starting to be a blow out!
Apple: 12 points
Google: 11 points
Facebook: 18 points (Leader)
Amazon: 5 points
Microsoft: 14 points
In the final round, Facebook once again crushes the competition. And, thus, we have our final tally:
Facebook wins the bake off! Steady performer Microsoft (no wins or losses) comes in second. Google takes third and strong starter Apple fizzles down the stretch to take fourth. Amazon, which had three last place finishes and two fourth place finishes, unsurprisingly comes in last.
After the bake off, maybe you feel comfortable picking a stock to invest in. Or, maybe not! Just because this is some analysis with numbers doesn’t mean we found the best stock. But, it certainly helps shed some surprising new insights on the competition (for example, I wouldn’t have expected Amazon to do so poorly).
At the end of the day, this is just one fun approach to comparing some potential candidates. Best of all, it’s a quick-and-easy recipe and you can easily substitute the ingredient metrics to tailor things even more to your liking!
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