Please ensure Javascript is enabled for purposes of website accessibility

Tech Giants Look Cheap Heading Into Earnings Season

By Travis Hoium - Apr 16, 2013 at 9:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Five of the biggest names in tech are looking like bargains.

Earnings season started last week, but this week the fireworks really start to fly. Microsoft (MSFT 0.15%), Intel (INTC -1.19%), and Cisco (CSCO -1.13%) are just a few of the tech companies reporting earnings this week, and we'll get a good idea just how the tech space is faring. There's a lot of pessimism priced into shares, and a strong earnings report could push stocks higher. 

Sorting out the winners and losers
The interesting trend to watch is where consumer dollars are going. Recent data suggests that the PC is in steep decline, presumably replaced by tablets and other mobile devices. But when we look at the valuations of companies that would benefit from tablet sales, they're not trading any higher than those that still rely on the PC. Apple (AAPL -1.07%), which still dominates tablets, is less expensive than Microsoft and Intel in many ways, so the market is down on everything.

Companies providing infrastructure and services, such as IBM (IBM 1.07%) and Cisco, are also trading at fairly low valuations, especially when you consider their solid dividends.

Company

Price/Book

Trailing P/E

Forward P/E

Dividend Yield

Microsoft

3.3

15.8

9.3

3.2%

Intel

2.1

10.2

10.6

4.2%

Apple

3.2

9.7

8.7

2.5%

IBM

12.6

14.7

11.5

1.6%

Cisco

2.1

12.4

10.3

3.2%

Source: Yahoo! Finance.

What's interesting about the broad look at these five companies is that they're all trading like value stocks. High levels of cash, low P/E ratios, and high dividends are a value investor's dream. There's still a lot of growth left in many areas of tech, though, so companies that can capitalize are going to reward investors.

Upside across these tech giants
I think Apple is a steal right now, given its exposure to tablets and the sticky nature of its business model. I've been high on Microsoft in the past, because mobile is pure upside, but the PC is declining faster than I expected, and investors should be wary of a value trap here. This is the only one of these companies I wouldn't buy today (even though I'm not selling). Intel is also just entering mobile, and I think we'll begin to see progress in 2013, especially because expectations are so low.

No matter whether PCs or tablets are selling from store shelves, IBM's services are key to businesses, and Cisco's infrastructure products will be in demand. These aren't sexy businesses, but they're both great values, given the stability of these diverse businesses.

Really, there's no reason all five of these companies can't outperform the market in 2013.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$145.54 (-1.07%) $-1.57
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$135.03 (1.07%) $1.43
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$261.50 (0.15%) $0.38
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$49.00 (-1.13%) $0.56
Intel Corporation Stock Quote
Intel Corporation
INTC
$43.08 (-1.19%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.