What happened
Bad news for investors in the personal computing (PC) industry: In morning trading Tuesday, shares up and down the supply chain -- from chipmaker Intel (INTC -0.60%) to software giant Microsoft (MSFT -0.26%) to hardware manufacturer HP (HPQ -0.80%) -- are all sliding.
As of 10:40 a.m. ET today, Intel stock was down a big 4.6%, with both Microsoft and HP following with 3.9% losses.
So what
So why are tech stocks taking a bath this morning? It's the economy, silly. Although analysts had predicted that inflation would decline with the falling price of oil, August's inflation rate inched up another 10 basis points, resulting in an 8.3% year-over-year inflation rate for the month.
This stubborn refusal of inflation to act transitory has investors thinking it's basically a given that the Federal Reserve will raise interest rates by at least another 75 basis points at its meeting next week -- the third such rate hike in a row.
Responding to this prospect, bond rates (which are closely tied to Fed policy) shot up; the 10-year Treasury is now at 3.43%. Simultaneously, tech stocks -- which as a whole carry high price-to-earnings (P/E) ratios and become relatively less attractive as risk-free government bonds pay more -- are taking a plunge.
Nor is that the only bad news for investors in PC stocks. Earlier this month, International Data Corporation (IDC) released its latest forecast for the industry, and it was pretty glum, chum. IDC expects that sales of PCs will decline 12.8% year over year through the end of 2022, and that means less money spent on computer chips, PC software, and PCs themselves.
Now what
So bad news for Intel, Microsoft, and HP, right?
Yes, but viewed from purely an investing angle, this bad news might already be priced into these stocks. At 27.4 times trailing earnings, Microsoft isn't all that much more expensive than the average S&P 500 stock right now (which trades for a 20.1 multiple). And that's especially true with Microsoft being expected to grow earnings nearly 20% faster than the average S&P stock over the next five years.
Meanwhile, Intel and HP are both much cheaper than the average S&P 500 stock, at just 6.8 and 5 times trailing earnings, respectively. Presented with valuations like these, I think you have to ask: Does Intel really deserve to sell for a 64% discount to the S&P's valuation? Is HP really worth only 25% what the average large company in America is worth? And even if they are, doesn't Intel's 4.8% dividend yield and HP's 3.6% yield make up for at least some of the difference.
I think these are pretty solid companies, paying solid dividends. And selling their stocks today might be a mistake.
