It was one of the top-performing sectors in 2012, with many
companies from the group hitting new 52-week highs. And with
thisbullish trend still in play, these stocks are in position for
more of the same in 2013.
I'm talking about big technology.
With investors searching for stability in 2012, big technology
was especially hot this year. That pushed mega-cap technology
companies such as
International Business Machines (
Oracle (Nasdaq: ORCL)
to new all-time highs. It also lifted the Nasdaq 100, anindex of
major technology companies, to a new all-time high. Take a look at
the chart below...
Simplyput , big technology has never been stronger.
The industry is sitting on recordearnings . In fact, earnings of
big technology companies are well ahead of 12 years ago, when the
Nasdaq crossed the 5,000 mark. After 12 long years of abear market
in technology, strong earnings growth has many former high-fliers
trading at record low valuations. The list includes
Microsoft (Nasdaq: MSFT)
, delivering full-year earnings of $2.69 per share in 2011, an
all-time high and 28% increase from the previous year.
Cisco Systems (Nasdaq: CSCO)
is on pace to deliver earnings of $1.77 per share in 2013, an
all-time high as well.
Beyond earnings, big technology also haspricing power . With
global markets, suppliers and distribution networks, there are few
companies more equipped to handle economic volatility with pricing
power than firms from this group. Not to mention, the technology
industry is also swimming incash . For the time being, these big
cash positions are being managed conservatively. But longer term,
this extra cashwill likely create opportunities for big technology
to invest in growth, pay dividends and buyshares back.
Alot of big technology companies actually pay adividend now,
Intel Corp. (Nasdaq: INTC)
for example, which isn't typically thought of as a dividend stock.
The company now sports adividend yield of almost 4.5%, more than
twice the return of a 10-yearTreasury note .
And with the outlook for 2013 being murky at best, with tons of
landmines just like we've seen in the past few years, big
technology looks well positioned to navigate this volatility. And
this trend should set the foundation for another strong performance
In fact, these four stocks could shine even brighter in
Oracle has been on a tear in 2012, up 31% on the year and
trading within 8% of the March 2011 all-time high. These
gains are being driven by more earnings growth, with
full-year 2013 earnings expected to be increase 9% to $2.55
per share. That has shares trading at a discount to its peers
and themarket . With a forward price-to-earnings (P/E ) ratio
of just 13, Oracle trades at a discount to its 10-year
average P/E of 16 and its peers P/E of 15.
Cisco Systems Inc.
Cisco was a big-time high flyer from the 1990s. But now, 15
years later, the company looks more like a solidblue chip in
technology with a very respectable dividend yield of nearly
3%. Hardware has been a tough segment for the past few years,
with the desktop space becoming largely commoditized. But
Cisco's position in higher-end networking gear protected it
from some of the price erosion in desktop hardware. Cisco is
another big technology company that looks undervalued,
trading with a forward P/E of 11, a nice discount to its peer
P/E average of 15. With investors on the hunt forblue chips
withyield , Cisco could become a hot destination soon.
This is looking like a solidturnaround story. Online auction
eBay (Nasdaq: EBAY)
saw its margins fall a few years back as it fell out of favor
with loyal buyers and sellers. But in response to
erodingmarket share and margins, management implemented new
initiatives to become more profitable and boost growth. Those
efforts are now paying off. The company continues to see good
results in its core business, including itscommerce and
payments systems divisions. Looking forward, analysts are
projecting year-over-year earnings growth of 17% in 2013,
calling for full-year earnings of $2.40 per share.
Amazon.com (Nasdaq: AMZN)
is easily the priciest stock on the list, trading with a
forward P/E ratio of 60. But that hasn't slowed shares down
one bit this year, up a market-crushing 44%. Amazon is doing
a lot of interesting things right now. It's chipping away at
big-box retailers such as
Best Buy (
with their incredible online presence. It's also attacking
Apple (Nasdaq: AAPL)
with its e-reader Kindle. In addition, the company is
becoming a major player in the cloud space as a provider of
web and cloud services. When you add it all together, Amazon
is a top player in a number of major tech segments. Analysts
are calling for earnings of $1.80 per share in 2013, which
creates a lofty valuation. But if 2013 looks anything like
2012, then this techmega cap should be in good shape.
Risks to Consider:
Technology has seen market-leading gains in the last year. If
investor sentiment cools,profit taking could drive outflows from
large tech stocks.
Action to Take -->
Big technology has never looked stronger. The industry is sitting
on record earnings, record margins and record cash. And with
investors looking for more stability in a market clouded with
uncertainty, big technology looks well positioned for more gains in
2013. The four companies mentioned here are particularly set for a
strong year ahead.
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