[note: an earlier version of this post originally appeared on my Yahoo! Finance page.]
A few months ago, Apple (AAPL) posted one of the greatest quarterly beats in the history of capitalism and its market cap–already the world’s largest–officially doubled the size of the next closest company, a little energy outfit you might have heard of called Exxon (XOM). Nonetheless, I wrote a piece for CNBC.com at the time saying that if I had to choose between the two stocks to buy and hold for the next twenty years, I would pick up my iPad, log into my brokerage account and order a whole bunch of XOM.
With both companies releasing earnings this week, it seems like a good time to revisit that call. Apple annihilated analysts’ expectations again on Monday. Exxon also beat, but its profits were off by almost 50 percent and its stock has been the second worst performer in the Dow, down 5 percent since New Year’s Day and over 13 percent in the last 12 months. The oil giant has even ceded the number two spot in market cap to Microsoft for the time being.
So, have I changed my mind? Do I now think AAPL is a better buy than XOM? The short answer is: no. The long answer is: absolutely not.
Don’t get me wrong. I don’t think Apple is a bad company. Far from it. Yet, for all of its rightfully famous innovation and slick marketing, many people seem to overlook a troubling fact: Apple is a consumer product company. That’s an extremely volatile business, especially when–like Apple–you’re a consumer product company with exactly one hot-selling consumer product. No, I’m not talking about the Apple watch. Companies don’t approach a trillion dollar valuation by hawking digital baubles. As others have pointed out, Apple is now a cellular phone company that happens to make a few other products on the side. Yes, that cellular phone is fabulously popular right now. It’s shattering sales records left and right. But, like all consumer products, the iPhone is still subject to the fickle whims of consumer tastes. Buying one is a choice, not a necessity–and people tend to make different choices over time. Apple itself has demonstrated this market law. Not too long ago, people chose to stop buying what it was selling and it damn near went bankrupt.
Exxon is a different story. For all the optimism about green power, there is exactly zero chance that consumers will stop buying its products. Oil still runs the planet, and it will for quite some time. Even as the world’s economy (hopefully) shifts to cleaner energy sources, Exxon will almost certainly remain a dominant player. A few years ago, it bought its way into the booming natural gas market. I’m confident that it will show the same adaptability in the future. When renewables begin to threaten its market share in a serious way, Exxon will simply move into that business, as well. The bottom line is this: whatever happens, Exxon will ensure that consumers have to buy its products, no matter what.
Tech companies are always cool to folks in the investment business. Large cap oil companies? Not so much. The fact that it took this long for even the smartest Wall Street professionals to figure out that Twitter has virtually no chance to become profitable is only the latest example of this bias. When I started out in the early-1980s, everybody was gushing about Digital Equipment. It was the can’t-miss tech darling of that decade. By the mid-90s, it didn’t exist. Digital was arguably a better bet then than Apple is today. It sold its products mainly to businesses, as did the other massive tech firm of that era, IBM. As the New York Times pointed out last weekend, IBM was the last company to see its market cap double the next largest public corporation. That was thirty years ago. I’ll give you one guess which company was number two back then, too. That boring and unfashionable, yet wildly and consistently profitable, standby: XOM. I have no idea where Apple’s market cap will rank in a twenty or thirty years. No one does. But I strongly suspect that Exxon will remain one of the most valuable companies in the world, as it has been for the last half century.