Tech Bellwethers Looking Cheap?

The trailing 12-month P/E ratios of both Intel (INTC) and Microsoft (MSFT) are now below ten. Below we highlight long-term charts of the trailing P/Es for both INTC and MSFT, and as shown, they're both at their lowest levels in years, if not ever. Intel's trailing P/E got low when its share price declined at the start of the '00-'02 bear, but it soon spiked when earnings really started to tank. The same thing could happen now, but it's still noteworthy that its P/E is at the bottom of its long-term range. MSFT, on the other hand, saw its P/E decline throughout the '00-'02 bear as its price fell much faster than its earnings. Its valuation continues to drop lower and lower, as investors have shifted their views on MSFT from a growth to a value stock. However, its P/E has never been below 10 like it is now.

We also highlight the historical trailing 12-month P/E ratio for Apple (AAPL). At 15, its P/E is also at the bottom of its long-term range, but like INTC, this could spike if earnings begin to fall sharply. However, in the post iPod, iPhone world, expectations are that they won't.

Comments

[igggy:]

When their P/E goes up to 30 while the prices go down another 30-50%, I'll think about buying. MSFT and INTC (and to some extent AAPL) are cyclical companies.

Jan 15 04:44 PM

[ozcutty2:]

I acutally think these charts show the opposite, that they are not that cheap and have been cheaper in the past, i.e. it looks like AAPL used to trade at 8x earnings, so at 15 it can't be classed as a bargain.

Jan 15 07:00 PM

[Timeline St...:]

I'm sure that whenever AAPL traded previously at 8X earnings, that it didn't have $24.5 billion of cash and short term investments.

I think that MSFT is cheap for a reason; INTC is at risk of deflationary pressure on its products; and that AAPL may be a reasonable investment.


On Jan 15 07:00 PM ozcutty2 wrote:

> I acutally think these charts show the opposite, that they are not
> that cheap and have been cheaper in the past, i.e. it looks like
> AAPL used to trade at 8x earnings, so at 15 it can't be classed as
> a bargain.

Jan 15 07:20 PM

[User 265729:]

Unless the stocks will provide light when the power grid fails, or I can eat it when the local stores are looted, they aren't cheap at all.

Jan 15 08:07 PM

[Jolly_Rancher:]

MSFT and INTL are aging companies whose businesses are considered at the end of the long term cycle. In other words, investors expect lower PE and higher dividend. But in true tech style, there will never be a decent dividend, only a beautiful super nova, Nortel style.

Jan 15 08:46 PM

[Smart1:]

Oh, so computers are going away....I see.....?

Jan 15 09:57 PM

[PastTense:]

Smart1: Actually computers are going everywhere: but they are becoming smaller, cheaper and more specialized. The big trend right now is the netbook. The netbook (a small portable computer mostly doing browsing and email) is not running the massive MS Vista operating system (Linux instead). While Intel may sell a lot of chips for these the profit is so low that they won't make much money. Another big trend coming is a set-top box for a TV to provide TV from the internet. Again these are really specialized computers--but Intel and Microsoft are not going to be making much money from them.

Jan 15 11:31 PM

[rber:]

I don't get it. Seems like everyone is looking in the rear view mirror unaware of the brick wall they're driving into.

Jan 15 11:34 PM

[najdorf:]

smart1: Of course. Also, any day now everyone is going to start using open source software, unlike the last 15 years in which no one except dorks with a lot of opinions even bothered to look at it. Furthermore, you can tell that MSFT sucks because 80%+ of the computer-using world uses their products. It's not a staple item at all.

Jan 15 11:35 PM

[stockguru32:]

apple is way to low for anyones good. Frankly they have too much cash to be this low, even with jobs sick. good read today at crashmarketstocks.com

Jan 15 11:58 PM

[icandoitdon:]

cash on a balance sheet speaks to the past...not the future. i can name countless companies with large cash positions that have sucked air for years. microsoft among them.


On Jan 15 11:58 PM stockguru32 wrote:

> apple is way to low for anyones good. Frankly they have too much
> cash to be this low, even with jobs sick. good read today at crashmarketstocks.com

Jan 16 01:37 AM

[Tulls19:]

On 23SEP08 MSFT authorized 40B buyback of its shares and an increase on dividend of %18 to 13 cents. GE bought billions of its own shares at a much higher price than it is at now. GE is too illiquid to buyback shares now due to massive debt and so billions of share holder dollars went up in smoke. MSFT also bought back billions in shares over the years (though in relative terms not near the level GE overpaid) yet the company generates so much cash that is is now sitting on reserves and can take advantage of this price environment. It's unfortunate that the author didn't take a stab at what level earnings MSFT would have to maintain to influence its PE with its own cash.

Jan 16 04:18 AM

[Urbane Gori...:]

Pardon me if this comes across as macabre, but I think you could consider AAPl as the 'Steve Jobs Health Chart'. Too much focus on his well being and not enough on the value of the company.

jegan

Jan 16 08:37 PM

[Smart1:]

Intel's claims that their margin (% and amount) on "Atom" (the netbook chip) is equal or better than "celeron" (current cheap notebook processor). I believe they reported that Atom yields something like 3,000 die/wafer so that could well be true. Additionally, netbooks will replace some low end notebooks from today but, according to Intel today, the vast majority of them are incremental. I intend to buy one myself but I don't expect it to replace a full featured notebook. Netbooks will obviously not replace many/most computer applications (businesses, servers etc).

You may have a point about Microsoft, however, people have been predictiing the demise of them for years but somehow they just keep on keeping on....

Jan 16 08:59 PM