Technology

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Though not as bad as some industries' performance this year, technology companies haven't exactly wowed investors. In fact, several tech stocks are down dramatically year to date, which has some investors running for the hills. However, for those with a long-term time horizon, tech stocks including Western Digital (NASDAQ:WDC), China-based search giant Baidu (NASDAQ:BIDU), and Intel (NASDAQ:INTC) are worthy of consideration, in part because of their relatively poor performance in 2015.

Bob Ciura: Technology stocks have been hit extremely hard in the most recent sell-off, and one I've got my eye on is Western Digital Corporation. Western Digital is 30% off its 52-week high, but I think the stock is a bargain now. Shares trade for just 13 times trailing earnings and 10 times forward EPS estimates. And the stock pays a nice 2.5% dividend, to boot.

Western Digital has gotten slammed over fears surrounding the fate of the personal computer. PC shipments have declined significantly this year. While that doesn't directly impact Western Digital, there is a real chance that as PC sales fall, as will sales of PC accessories such as storage devices. Indeed, Western Digital's total revenue declined 3% in its recently concluded fiscal year. Earnings per share were down 7% year over year.

But long term, I'm not concerned. Some of the weakness in PC shipments this year can be attributed to the release of Windows 10, which caused consumers to put off buying new PCs. And even if the PC continues to be weak for some time, Western Digital has built a powerful and successful non-PC business, in areas like the cloud and data archiving. In fact, about 60% of revenue is generated from non-PC businesses.

Going forward, Western Digital has the balance sheet strength to continue investing in higher-growth areas of the future. The company holds $5.2 billion in cash and short-term investments on the books, more than twice the amount of its total debt.

As a result, I see Western Digital as a strong company and a cheap stock, with a long road of growth up ahead.

Brian Stoffel: It's been a rough year for shareholders of Baidu, China's largest Internet search engine. Shares have shed roughly one-third of their value so far in 2015.

Things started heading south earlier in the year when it became apparent that the company was in investment mode and that profits would not be growing nearly as fast as revenue. The downward trend has continued lately as the Chinese stock market has contracted over 40% since June. Investors are worried that a slowdown in China will mean bad things for Baidu.

But I think these concerns are overblown. While a slowdown in China may be an obstacle over the short term, the shift to a connected China is inevitable. Smaller players with less cash will not be able to match Baidu's investments in areas that should make it a force to be reckoned with for decades.

Founder and CEO Robin Li knows that mobile devices have the potential to take a bite out of the company's core search market. That's why he's investing heavily in online-to-offline (O2O) initiatives. In essence, this means connecting users with the brick-and-mortar businesses they are seeking, all while collecting a fee for doing so. If Alphabet could go back 10 years, I think they would love to have developed the same platform.

Because China is still behind the U.S. in Internet adoption, Li is learning from Alphabet's missed opportunities. It will take time for the investments in O2O to pay off, but when they do, I expect them to be substantial.

Tim Brugger: As is the case with many of its PC-reliant brethren, Intel continues to get beaten up thanks, in large part, to continued weakness in desktop computer sales. The world is quickly moving to the cloud and going mobile, and Intel was slow to make the transition. Last quarter's earnings results were just the latest example of Intel's supposed "weakness." Total revenue declined 5% compared to 2014 to $13.2 billion, margins were squeezed and Intel's operating income dropped 25%. Yes earnings-per-share were flat, but that was primarily due to a significantly lower tax rate compared to last year.

Naturally, the culprit was a "challenging PC market," which was all Intel naysayers needed to continue a sell-off that has seen its value decline about 20% year to date. But that's precisely why Intel is worth a good, strong look. The shift Intel is in the midst of entails moving away from PCs and focusing on cloud-related data center sales, the Internet of Things, and mobile solutions. And despite the negativity surrounding Intel today, it's making strides where it counts.

As CEO Brian Krzanich said last quarter, those key areas of the "new" Intel "accounted for "more than 70 percent of our operating profit." Not only did Intel's data center group revenue increase 10% year over year, it was up 5% sequentially, and that followed the first quarter's whopping 19% improvement. Perhaps most indicative of Intel's successful shift to reinvent itself is that data centers, along with IoT sales, continues to make up a larger portion of its total revenue each quarter. It's a matter of when, not if, investors finally recognize Intel isn't about PCs anymore, and when that happens, shareholders will be smiling all the way to the bank.

 

Bob Ciura has no position in any stocks mentioned. Brian Stoffel owns shares of Baidu, Google (A and C shares). Tim Brugger has no position in any stocks mentioned. The Motley Fool owns and recommends Baidu, Google (A and C shares), and Intel. The Motley Fool owns shares of Western Digital. 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.