Are These 2 Tech Stocks Bubbling Up?

Apple and Qualcomm appear to be reasonably priced, while Amazon and LinkedIn are not.

May 7, 2014 at 11:30PM

While stocks of some technology companies like (NASDAQ:AMZN) and LinkedIn (NYSE:LNKD) appear to be overpriced, there are plenty of others that are not bubbling up.

Some investors have taken note, and Amazon and LinkedIn have shed value this year. Even after the drop, both stocks are still relatively expensive, trading at triple-digit multiples, and probably should be passed on until the companies can make some money. 

AMZN Chart

AMZN data by YCharts

On the other hand, Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) haven't missed a beat and currently sport P/Es more in line with the overall market and industry peers. The businesses have good stories going forward, too.

Investors might want to consider one or both of these more reasonably priced companies, both of which are focused on the growth prospects in wireless hardware.

This star is still burning bright
Apple has been the star performer in wireless for many years now. The company has sold hundreds of millions of iPhones, iPads, and iPods and returned billions in cash to shareholders. 

And Apple might have more room to grow. Many analysts thought the high-end smartphone market would dry up and the company would lose its primary cash cow. They thought wrong, as the iPhone continues to impress. Apple sold 43 million in the first three months of the year, far exceeding expectations that only 37 million devices would be shipped. 

The future appears bright, too, as the next-generation phone, which will probably feature a larger display to satisfy the growing chorus of consumer demand, is due out later this year. Apple might have a few other things up its sleeve, too. There are other rumors floating around that a wearable device and an in-store retail payments platform based upon Apple technology may be brewing in the labs at One Infinite Loop in Cupertino. 

In addition, the company plans to return more cash to shareholders in the form of another dividend increase and an expanded buyback program. 

Investors can't go wrong with Apple right now, but don't wait too long. Shares rose nearly 15% after quarterly results were announced in late April.

Communication is key
Investors in Qualcomm, which sells communication chips to handset and tablet manufacturers, will continue to benefit as the company is positioned well in an expanding market.

Qualcomm has no debt and has been growing both revenue and EPS at double-digit rates over the last few years. The trend should continue going forward if demand for low-end phones increases in emerging markets as expected and if the company can continue to innovate and reduce the prices it charges for its products.

Qualcomm has a strong record of dividend increases. And with a low payout ratio and increasing levels of free cash flow, that trend is likely to continue. 

QCOM Dividend Chart

QCOM Dividend data by YCharts

The problem is the "E"
Amazon and LinkedIn have been very successful at selling products and services, and revenues are growing at both companies. However, the problem is in earnings, the "E" in the P/E. The companies simply do not make much money, and it seems that investors do not want to pay as high a premium for the shares right now because of that fact. 

Amazon is the dominant player in online retail today and commands the majority of market share. The company has attempted to expand by adding web services and hardware to its offerings, too.

Amazon sacrifices profits and plows cash back into operations. It builds new warehouses to grow the e-commerce business and expands data centers to boost its web services segment. That strategy has worked for the most part, as the stock became a 70-bagger over the last decade. However, as the old adage goes, "What have you done for me lately?" If Amazon can become more efficient and grow income, it might be able to reverse the current downtrend.

LinkedIn has one of the most popular social media sites which is the go-to place for job leads and networking. But income has been spotty and EPS growth flat for most of the last three years. The company probably needs to be more effective at increasing the number of regular users and monetizing its website. Investors should stay away until it does.

Foolish conclusion
Investors considering two reasonably priced tech companies, Apple and Qualcomm, probably won't be sorry to take the plunge. Both have good prospects going forward as the wireless industry continues its march upward, and both regularly bump up their dividends.

Those looking at companies with triple-digit multiples like Amazon and LinkedIn might want to think twice. In spite of solid revenue growth, the companies are not making much money right now. Until prospects for profits are better, shares may lag.

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Mark Morelli owns shares of Apple. The Motley Fool recommends, Apple, and LinkedIn. The Motley Fool owns shares of, Apple, LinkedIn, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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