10 Cheap Tech Stocks Worth a Second Look

by: Whopper Investments

After looking at the most overvalued stocks on the S&P 500, I realized that almost all of them came from the tech sector. With that in mind, I thought I would take another look at the tech sector, looking for potentially undervalued tech companies. I sorted the Russell 1000 tech sector for the lowest EV to forward EBITDA multiples, and below I present the 10 cheapest stocks.

Ticker Name EV / Forward EBITDA EV/EBITDA T12M ROE LF P/E Market Cap
WESTERN DIGITAL 2.79 2.46 23.76 6.45 6,892,103,168
SEAGATE TECHNOLOGY 3.33 2.67 46.80 5.33 5,675,685,888
LEXMARK INTL-A 3.41 3.67 28.24 7.73 2,897,523,968
AOL INC 3.45 2.10 -29.26 26.45 2,154,894,080
COMPUTER SCIENCE 3.52 3.81 12.01 9.19 7,421,066,240
MU MICRON TECH 4.04 3.28 26.84 8.33 11,059,940,352
DELL DELL INC 4.04 4.99 39.31 11.07 29,803,700,224
IM INGRAM MICRO INC 4.28 4.89 10.17 10.30 3,084,267,008
MOTOROLA SOLUTIONS 4.52 4.46 6.13 20.61 13,229,339,648
INTC INTEL CORP 4.78 4.95 25.16 10.81 117,937,102,848

That’s quite a list! The average ROE of the firms is 19%, with a P/E of below 12x and an EV/EBITDA below 4. We’ve seen Western Digital, Seagate and AOL before, as they are also among the cheapest stocks in the market overall (Lexmark was also on that list). We also saw Western Digital, Seagate, AOL, Intel and Dell mentioned as potential LBO candidates. Since we’ve already mentioned those, let’s take a look at some of the other tech stocks selling at a discount.

Computer Science (NYSE:CSC)

Another stock that has been mentioned as a takeover target (also mentioned on Barron's), CSC has been remarkably consistent. Over the past five years, earnings have come in between $950m and 1,050m four out of fives times, with the one miss coming to the upside (1,173m) in 2007. That type of consistency is just the sort of thing LBO firms look for, and its low current multiple and decent returns on equity can only increase that attraction.

Micron Tech (NASDAQ:MU)

A potential Apple (NASDAQ:AAPL) derivative play, Micron creates semiconductors found in electronic products, including the iPhone 4. Shares popped today on speculation that it would supply the chips in the new iPad2, but despite the pop, the company still trades at a huge discount to its peers.

Lexmark (NYSE:LXK)

Lexmark is one of the titans of the printing industry. While the industry is notoriously competitive, that’s already been priced into the company’s shares. Customers slashed purchases during the recession, but they’ve returned as the economy has improved, and sales and profits are growing at a rapid clip as they make up the purchases delayed during the recession.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.