Last year, technology investors obsessed over LinkedIn and
Groupon as the two social media companies went public in
spectacular fashion. In 2012, Facebook is the next juggernaut to go
IPO. Already investors are chomping at the bit to get in on it.
Will Twitter be next?
I don't know about you, but the excitement is beginning to remind
me of 1999 all over again. And I'm not talking about companies like
Fogdog or Pets.com going public without any earnings. The IPO scene
is reminding me of the optimism from that time when companies were
being formed in South of Market loft apartments with just a few
computers and a dream.
Technology stocks are hot again. They're glamorous. Everyone is
talking about them. Employees in Silicon Valley are getting rich
again.
Must Own Stocks
Back in 1999, there were several technology stocks that were,
essentially, "must own" stocks. They were called the "tech titans"
and from the beginning of the decade to the end, they gave
investors spectacular returns.
Many investors considered them almost sure things- until the
technology bubble burst and then they weren't so "sure" anymore.
It's been a long road back.
Now, these companies are no longer the new kids on the block. In
some cases they even pay, gasp, a dividend!
Technology Stocks = Value Stocks???
But while LinkedIn is trading with a nose bleed P/E of 266x and
Groupon isn't much better with a forward P/E of 80, the old tech
titans have suddenly become a real deal.
Over a decade after the dot-com bubble burst, they are now value
stocks.
It might be time for technology investors to take another look at
the original group of technology golden boys. They're not dead yet.
Four Tech Titans With Plenty of Value
By 1999, every mutual fund manager owned at least one of these
stocks, and many probably owned all four of them.
You can see why from their 20 year returns, of which most of it was
made before the bust in 2000-2001.
1. Cisco: 3317% return
2. Intel: 1476% return
3. Microsoft: 1214% return
4. Dell: 7993% return
S&P 500: 228% return over 20 years
The decade before the dot-com bust were the glory years however.
The returns since the bust have not been nearly as attractive.
All of them have underperformed the S&P 500 over the last 10
years with 2 of them finishing in the red during that period.
1. Cisco: 21% return
2. Intel: -2% return
3. Microsoft: 13% return
4. Dell: - 31% return
S&P 500: 23% return over 10 years
Low P/Es
But now, the stocks are unloved enough that the valuations are very
attractive. All of them are trading with forward P/Es under 15,
which is the cut-off I usually use for value stocks.
1. Cisco: Forward P/E of 13
2. Intel: Forward P/E of 11
3. Microsoft: Forward P/E of 11.4
4. Dell: Forward P/E of 8.9
S&P 500: Forward P/E of 13
Solid Fundamentals
1. Cisco
(
CSCO
) is a Zacks #2 Rank (Buy). Fiscal 2012 earnings are expected to
rise 12.5%. The company recently raised its dividend which is now
yielding 1.2%.
2. Intel
(
INTC
) is a Zacks #3 Rank (Hold). It has a 1-year return on equity (ROE)
of 28%, well above the S&P 500 average of just 13.8%. It also
pays a juicy dividend, yielding 3.2%.
3. Microsoft
(
MSFT
) is a Zacks #3 Rank (Hold). The company's 1-year return on equity
(ROE) is a stellar 39.4%. This crushes the S&P 500 average.
Shareholders get a 2.6% yield in the dividend.
4. Dell
(
DELL
) is a Zacks #1 Rank (Strong Buy). Analysts expect 2012 earnings to
jump 38%. The company also has a 1-year return on equity (ROE) of
49%.
Don't Forget About Value
It's easy to get caught up in the next "hot" technology stock. Many
investors did just that in 1999 and 2000. But you shouldn't forget
about valuation. You can still get exposure to the technology
sector at an attractive price.
Tracey Ryniec is the Value Stock Strategist for
Zacks.com
. She is also the Editor of the Turnaround Trader and Insider
Trader services. You can follow her on twitter at
traceyryniec
.
CISCO SYSTEMS (
CSCO
): Free Stock Analysis Report
DELL INC (
DELL
): Free Stock Analysis Report
INTEL CORP (
INTC
): Free Stock Analysis Report
MICROSOFT CORP (
MSFT
): Free Stock Analysis Report
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