IBM (NYSE:IBM), HP (NYSE:HPQ), and Intel (NASDAQ:INTC) have a lot in common. At one time, each tech heavyweight virtually owned their respective shares of the PC market. IBM was an enterprise hardware king, HP's desktop devices were everywhere, and Intel's chips seemingly powered every PC on the planet.
Today, each is in the midst of significant transformations to reinvent themselves to suit a cloud, Internet of Things (IoT), and mobile world. And for short-sighted investors, big hitters that report so-so financial results as they make their transitions equate to a big opportunity for those with a bit of patience. Not to mention that IBM, Intel, and HP pay their shareholders a dividend yield of 3% or more.
The case for IBM
Up 17% year to date, IBM may not seem like a candidate for a cheap stock. However, its years-long effort to shift away from old-school enterprise hardware to dominate fast-growing markets including the cloud, IoT, big data, and analytics had left IBM shareholders sitting on considerable losses.
That said, IBM is beginning to deliver where it counts: strategic imperatives that encompass the aforementioned up-and-coming markets. Big data analytics is expected to become a $187 billion market in just three years, the estimates for cloud sales are similar, and IoT is forecasted to dwarf both. CEO Ginni Rometty has positioned IBM to prosper in all three.
Combined, IBM's strategic imperatives generated $8.3 billion in revenue last quarter, up 12% year over year and now boasts an annual run rate of $30.7 billion. That equated to 38% of IBM's total sales in Q2, inching closer to Rometty's objective of garnering 40% of revenue from strategic imperatives by 2018. If anything, it's time IBM upped its strategic imperatives goal because at its current pace the 40% target should be hit by early next year. And at 3.5%, IBM's dividend yield is one of the highest in the tech sector.
The case for Intel
At an even 3%, Intel's dividend doesn't quite stack up to IBM's or HP's, but its stock may just have the most upside. When CEO Brian Krzanich took the reins at Intel in 2013, he made it clear it was time for the PC chip king to shift gears to cloud-based data center sales, processors for IoT gadgets – there will be an estimated 6.4 billion connected "things" sold in 2016 – and mobile.
As for mobile devices such as smartphones and tablets, Intel's efforts have fallen well short of expectations. But before investors start running for the hills, Intel's Q2 offers a glimpse of what's to come. Total revenue grew 3% last quarter to $13.5 billion, which was certainly encouraging, but it was how Intel was able to boost sales warranting its spot on a list of cheap tech stocks.
Intel's client computing group declined 3% to $7.3 billion in Q2, but that was more than made up for by its 5% jump in data center sales to $4 billion. Add in its $572 million in IoT revenue and 10% jump in security sales, and the "new" Intel is beginning to deliver. And valued at just 12 times future earnings, Intel is a slam dunk for growth and income investors.
The case for HP
Of the three cheap dividend-paying tech stocks, HP may be the most compelling. Despite declining sales -- revenue dropped 11% in Q2 to $11.6 billion -- HP's stock price is up 23% since announcing its second-quarter results. That, along with its 3.45% dividend yield, has made 2016 a banner year for shareholders.
Following HP's split with its enterprise unit earlier this year, it was clear that it would take some time before the new entity hit its stride, and investors are giving CEO Dion Weisler just that. Good thing, too, as HP's new direction includes dominating the still-growing tablet market, which is expected to jump 27% in 2016 to 263 million units shipped.
Another burgeoning market, 3D printing, has HP's name written all over it. With one of the first relatively affordable desktop units available and a client base developed over the last seven-plus decades, HP could become the dominant player in what is forecasted to become a more than $30 billion opportunity by 2022.
Big names, big yields, and big growth opportunities make IBM, Intel, and HP all cheap tech stocks worth a good look.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Intel. 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.