Intel Versus Microsoft Versus Cisco

Three dominant technology companies: Intel (Nasdaq: INTC  ) , Microsoft (Nasdaq: MSFT  ) , Cisco (Nasdaq: CSCO  ) . No financial distress in their combined 100-plus years of operation. And yet, 10 years have now passed during which their valuations have been cut in half.

I'm pitting them against each other as investments today. It's King Kong versus Godzilla versus The Blob.

But before I do, let me start with a public-service announcement for outside shareholders.

I think all three companies should abandon stock grants as a form of compensation. Pay your employees in cash with cash bonuses that reward brilliant achievement. But stop clouding the picture of your performance for the many outside shareholders who don't want to spend hours of their summer afternoons trying to correctly evaluate the long-term implications of your non-cash compensation plan. Warren Buffett has built a company as successful as yours. He has done so with employees just as motivated as yours. And he has paid them cash with cash bonuses that have led to high retention rates.

End of public service announcement. Now on to my ranking.

If I had $20,000 to invest in these three stocks, I would put $10,000 into Intel, $8,000 into Microsoft, and $2,000 into Cisco. Intel has proven that it can grow through multiple environments and with different leaders at its helm. I think its stock will significantly outperform the S&P 500 over the next five years.

Microsoft is so profoundly strong financially that it can weather long-periods of competitive threat and eventually rise to the challenge. The world right now is counting out Microsoft, assuming that it has now already lost permanently to Apple and Google. And it's true that the double-digit growth rates are a thing of the past. Yet I think Microsoft's valuation, alongside its financial metrics, is attractive. I believe it'll beat the market as well.

Cisco is the least promising of the three, trading at the highest multiples with the lowest rates of return on equity and assets. Even if Cisco delivers on its growth projections, I think it'll be hard-pressed to beat the indices from here.

If I were to add this to my Stock Advisor selections, this is how I'd do it. How would you allocate $20,000 into these three stocks? Let me know in the comments section below.

Fool co-founder Tom Gardner owns shares of Intel, Cisco, and Microsoft. Intel and Microsoft are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google and Intel. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 21, 2010, at 9:01 PM, TMFtheEdge wrote:

    $20k in MSFT - I believe the lightweight business model gives it a tremendous advantage and I agree that it's overlooked as having "lost" to AAPL and GOOG

  • Report this Comment On July 22, 2010, at 1:02 PM, YoungDude20 wrote:

    20K into INTC... because I just did.

  • Report this Comment On July 22, 2010, at 4:35 PM, muditkumar wrote:

    I would put $20K in MSFT - it is time to invest when revenue and earnings/share has been growing in last 10 years - though the stock has not shown those gains. It is only a matter of time before everyone jumps on this bangwagon.

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