In the past, investors would typically need to look outside of the tech sector to find value stocks, however, in this current market climate it is possible to find bargains. There are even stocks that trade below book value in the tech sector. (Book value is a metric that value investors like to pay attention to since it can theoretically represent what all the company assets are worth less any liabilities.) Furthermore, while the average price to earnings ratio is about 14 times earnings, it is possible to buy some leading tech company stocks for single digit price to earnings ratios right now. The companies below offer cheap valuation levels in terms of book value, price to earnings ratios, or both and that could set these stocks up for solid gains in 2013. Here are some profitable tech companies that appear deeply undervalued by the market:
Hewlett Packard (HPQ) was not a good stock to own in 2012, but the currently low share price and some major recent investor disappointments could be setting the groundwork for a much better 2013. This company faces significant challenges as the PC industry slows due to the rising popularity of tablets like the iPad. It also has a major printing division which is not growing fast as more data is digitally formatted. If that weren't enough, Hewlett Packard disclosed that it would take a major charge for the Autonomy (software) acquisitions it made in 2011. All these factors have taken a major toll on the stock and it seems that expectations are very low for the company based on the current valuation. The stock now offers a dividend yield of about 4%, and it trades for just around 4 times earnings estimates of $3.31 per share for 2013. That is a huge discount to the market when you consider that the average stock in the S&P 500 (SPY) Index trades at about 14 times earnings.
There are a number of scenarios that could play out in the coming year which could unlock major shareholder value for investors. This includes everything from a takeover offer from another tech company like (perhaps) Oracle (ORCL), to a spin-off of various business divisions and assets which could reward investors. In one of CNBC's predictions for 2013, they believe HP will restructure by spinning off the PC and printing business which will leave the company with an IBM-like (IBM) business model that is focused on software and IT consulting. Some investors and analysts believe that Oracle could have interest in a takeover bid for HP, and in that case, Oracle could sell off the business divisions which it does not want. Either way, it appears that at current levels, HP could be forced to take major action to increase the value for shareholders, or outside market forces just might do it.
Here are some key points for HPQ:
- Current share price: $14.25
- The 52 week range is $11.35 to $30
- Earnings estimates for 2013: $3.31 per share
- Earnings estimates for 2014: $3.48 per share
- Annual dividend: 53 cents per share which yields 3.7%
Iridium Communications (IRDM) is a global leader in satellite communications and this little-known firm has to be one of the coolest tech companies in the world. Iridium's network of satellites can allow you to take a phone to the South Pole, then out to sea, and to the most remote regions of the world and it will still work. This is the kind of phone service that adventurers like Richard Branson would take on a hot air balloon trip around the world, or what military forces would need on a mission. While the average investor is aware of companies like Sprint (S) that provide communication services, not so many know about Iridium and that has created a major valuation gap. While Sprint has been posting losses and is expected (by analysts) to continue losing money in 2013, Iridium has been reporting solid profits and analysts expect it to earn 94 cents per share in 2013. By contrast, analysts expect Sprint to post a loss of about $1.45 per share in 2012 and another loss of 78 cents per share in 2013. Sprint shares have seen a major rally off the lows of 2012, and with that company still expected to face major challenges from larger rivals like Verizon (VZ) and AT&T (T), it might be time to take those profits and roll them into shares of Iridium which is a highly profitable telecom company with growth potential. While Sprint is the nation's number 3 carrier and faces major competitive pressure and the need to invest to stay relevant, Iridium is the leader in its industry, which also has a growing subscriber base.
As a recent Forbes article points out, multiple insiders at Iridium have been accumulating shares in this company throughout 2012. In August alone, three insiders including the CFO, Vice President and a director purchased a total of about 37,000 shares at prices ranging from $7.08 to $7.33, and that was followed up by more insider buying in November. That's a bullish sign and investors considering Iridium shares now have an opportunity to buy for even less than these insiders paid since it is trading around $6.75 per share.
Iridium has a fully funded business plan for its next-generation satellite constellation, which is called Iridium NEXT. The company recently stated: "We expect that our operating margins will continue to expand and we'll grow operating cash flow due to the operating leverage created by an increasing recurring service revenue base and largely fixed-cost business model." That's good news for investors and one of many reasons why this could be a great value and growth stock to own as it expands into satellite-based aviation tracking. Iridium shares trade below book value which is about $10 per share. As one recent article points out, this stock could double in 2013, and a top fund manager thinks this stock could be worth over $30 by 2017.
Here are some key points for IRDM:
- Current share price: $6.75
- The 52 week range is $5.25 to $9.73
- Earnings estimates for 2012: 83 cents per share
- Earnings estimates for 2013: 94 cents per share
- Annual dividend: n/a
Corning Inc., (GLW) shares appear to offer just about everything an investor could want: growth potential, a solid dividend and a bargain valuation. Corning makes a number of specialty glass and other products, but one of the most popular products is its "Gorilla Glass" which is used as the touch screen in many of the world's best-selling tablets and smart phones. Corning also supplies glass for many major flat screen television manufacturers and that side of the business has seemed to put a lid on Corning's stock valuation since slow demand for TV's has put pressure on profit margins.
However, the current share price looks too cheap to pass up for a number of reasons. First of all, Corning pays a dividend which yields nearly 3% and this will reward shareholders while waiting for a higher stock price. Analysts expect Corning to earn $1.34 per share in 2013, which puts the price to earnings ratio at just about 9 times. If that isn't enough, Corning has a has a very strong balance sheet with about $6.35 billion in cash and just around $3.4 billion in debt. Plus, it trades below book value which is $14.78 per share. As the television glass business improves over time and with the growth potential from tablets and smart phones, Corning shares could be poised to head higher in the coming year.
Here are some key points for GLW:
- Current share price: $12.62
- The 52 week range is $10.62 to $14.62
- Earnings estimates for 2012: $1.29 per share
- Earnings estimates for 2013: $1.34 per share
- Annual dividend: 36 cents per share which yields 2.9%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.