Getting nervous about the stock market? With GMO's Jeremy Grantham saying it's time to start selling, maybe you should be. Personally, I prefer value stocks to growth stocks when it's time to reduce risk. The low P/E ratio leaves less room to fall, and a fat dividend yield can provide a welcome cushion.
Lately, some of the biggest names in tech look a lot like value stocks. Compared to an S&P 500 index ETF, International Business Machines
Investment |
P/E |
Dividend Yield |
Last 12 Month EPS Growth |
2011E EPS Growth |
---|---|---|---|---|
SPDR S&P500 Index ETF (SPY) | 14.5 | 1.7% | 32% | 17% |
Intel | 10.7 | 3.1% | 96% | 10% |
Microsoft | 9.6 | 2.6% | 30% | 13% |
IBM | 14.1 | 1.8% | 16% | 15% |
Source: Capital IQ, a division of Standard & Poor's.
What's the catch? At all three companies, EPS growth is expected to slow until it lags that of the S&P 500 index overall. Nonetheless, all three are expected to produce double-digit EPS growth in 2011. Many investors are shunning Microsoft and Intel as the success of Apple's
In contrast, Hewlett-Packard
Investment |
P/E |
Dividend Yield |
Last 12 Month EPS Growth |
2011E EPS Growth |
---|---|---|---|---|
SPDR S&P500 Index ETF (SPY) | 14.5 | 1.7% | 35% | 17% |
Hewlett-Packard | 8.8 | 0.9% | 16% | 2% |
Cisco Systems | 12.7 | 1.5% | 9% | (7%) |
Source: Capital IQ, a division of Standard & Poor's.
Apple also deserves a mention in an article about attractively valued tech stocks, even though its P/E ratio exceeds the S&P 500 index's P/E, and Apple pays no dividend. Apple's 15.9 P/E simply doesn't reflect its stunning EPS growth -- nor the expectations that such growth will continue. Onetime tech darling Google, however, trades at a much richer P/E, despite far less impressive historical and forecasted EPS growth.
Investment |
P/E |
Dividend Yield |
Last 12 Month EPS Growth |
2011E EPS Growth |
---|---|---|---|---|
SPDR S&P500 Index ETF (SPY) | 14.5 | 1.7% | 35% | 17% |
Apple | 15.9 | 0% | 78% | 69% |
20.1 | 0% | 17% | 14% |
Source: Capital IQ, a division of Standard & Poor's.
Foolish takeaway
Investors looking for inexpensive tech plays will find no shortage of attractively valued tech titans. That said, some are cheap for good reason.
What do you think: Will slow PC growth continue to pressure Intel and Microsoft? Can Cisco and HP turn their businesses around? The Motley Fool's free new My Watchlist feature offers an easy way to stay on top of market developments. You can get up-to-date news and analysis by adding these stocks to your Watchlist now: