Investors are on edge these days, but what else is new. Prior to Microsoft (MSFT) releasing Windows 8, shares in PC makers and in Microsoft were in a holding pattern. Microsoft’s shares rose at around $32, while companies like Dell (DELL) and Micron (MU) had yet to bottom. Only Hewlett-Packard (HPQ) was falling in the summer months, because its problems were known. HP was in a multi-year transition, but the market wanted things fixed faster than that:
When Windows 8 was released, shares in these PC makers did not rise. In fact, more uncertainty drove shares lower. The Surface RT tablet from Microsoft is a departure from the company’s alliance with hardware makers.
One of the greatest threats for investors in the PC sector is the marginalization of hardware. The transition of devices storing information in the cloud is making hardware less important. Sure, it benefits VMWare (VMW), Citrix (CTXS), and Salesforce.com (CRM), but the immediate threat for the sector is Google (GOOG).
Google already leads the budget offering of computing with its $249 laptop. More recently, Google is upping the ante. The company is working with Acer and is selling a laptop for just $199. At this price, it is lower than Windows 8-based machines and even less expensive than Apple laptops. The laptop may be sold at such a low price, because it runs an Intel (INTC) Celeron processor and a 320 GB disk drive.
The low-price of a Google laptop will make it harder to justify Windows Pro Surface devices, which are expected to cost at least $1000. Power-users will point to Adobe Photoshop (ADBE) as a reason to buy a more powerful device, but Google’s $199 laptop will appeal to a wider audience. Need Microsoft Office? Google Docs is available as an alternative. Photoshop may be replaced with Instagram or a freeware program like GIMP.
Business Section: Investing Ideas
HP, Dell, and Microsoft are the usual suspects for PC-investing ideas, but their main attraction right now is low-valuation. According to Kapitall, HP’s Price of Profit, or POP, is just 4. Dell has a POP of 6, while Microsoft has a POP of just 9. Investors have clearly discounted any chance of growth in computers. The anticipation is that tablets and smartphones will dominate as consumption devices.
Practical investors should recognize that there is always a market for PCs, especially for content creators (nothing can really replace the mouse and keyboard right now). What the market is stating, though, is that consumption devices will only grow. Google’s low-cost computer will only get lower.
Cloud Computing Companies
Companies with a generally high POP may pull back, but shares will rebound faster than PC makers as markets become more optimistic:
1. VMware, Inc. (VMW, Earnings, Analysts, Financials): Provides virtualization and virtualization-based cloud infrastructure solutions primarily in the United States. Market cap at $36.98B, most recent closing price at $86.45.
2. Salesforce.com (CRM, Earnings, Analysts, Financials): Provides customer and collaboration relationship management (CRM) services to various businesses and industries worldwide. Market cap at $20.48B, most recent closing price at $147.32.
Beware! This company has an excessively high POP (denoted as “N/A” on Kapitall).
3. Citrix Systems, Inc. (CTXS, Earnings, Analysts, Financials): Designs, develops, and markets technology solutions that deliver information technology services on-demand worldwide. Market cap at $11.44B, most recent closing price at $61.16.
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