By Ed Ponsi, RealMoneyNEW YORK ( RealMoney) -- On Friday, Apple ( AAPL) closed at an all-time high of $648, and Facebook ( FB) closed at its all-time low of $19.05. Over the weekend, this prompted a question from one casual stock-market observer: Is it time to sell Apple, which now seems overpriced, and buy Facebook, which seems cheap in comparison? I told him no. In fact, I gave him the exact opposite advice -- sell Facebook and buy Apple. Both companies are expected to grow rapidly over the next five years, with Apple's annual earnings expected to grow by 23% and Facebook targeted at 27%. I believe Facebook's estimates are overly optimistic, however, for reasons that are about to become clear. Even after being halved since its initial public offering, Facebook shares are trading at 30x next year's earnings. But Apple, after experiencing a sevenfold increase in price, is trading at only 13x next year's earnings. Facebook's price-to-earnings to growth ratio is 1.59x, while Apple's PEG ratio is 0.66. In other words, even at Friday's closing prices, Facebook's anticipated growth is about 2.4x more expensive than Apple's. There's no justification for this disparity in valuations, as these companies are headed in opposite directions. Apple has new products on the horizon that are bound delight their customers. The next iteration of the iPhone is now expected in September, and it could be the biggest handset launch of all time. The iPhone now accounts for the majority of Apple's revenue and profits.
Facebook is contemplating placing advertisements directly in the user's newsfeed, instead of in their usual location, off to the side. Some analysts are excited by this development, as they believe this will be one of the keys to driving revenue, going forward. Will placing ads directly in the newsfeed inspire the same loyalty and delight from Facebook users that Apple enjoys? Or will it irritate and drive away the very consumers they target? Remember, Apple customers make a serious financial commitment to the company. iPhones, iPads and MacBooks aren't cheap, and customers who purchase them are unlikely to switch to a competing product on a whim. Meanwhile, Facebook users have no skin in the game -- they make absolutely no financial commitment to the company. Users can switch to Twitter on a whim, at no cost whatsoever, in a moment. Facebook has already made mistakes, and it might be on the verge of a big one. The company doesn't seem to know or care what its users want, and monetizing users will continue to difficult, because they don't log on to Facebook to buy things. The company is priced for perfection, and it could easily disappoint on earnings and revenues. Meanwhile, Apple is focused like a laser, consistently raising the bar and wowing its customers, and driving competitors like Research In Motion ( RIMM) to the brink of extinction. Even when the company hits a bump and disappoints on earnings, the stock's reasonable valuation prevents the price from falling too far. That's why even after the massive move higher in its shares, Apple is still a better deal than a half-priced Facebook.
At the time of publication, Ponsi was long AAPL.