For those investors who want to hold technology shares in their portfolios, we picked out the following six stocks as ones that could be considered. All of the names below have been given a 'buy' rating by mainstream analysts:
Apple Inc (AAPL): Shares are trading at $356.03 at the time of writing, toward the top end of their 52-week trading range of $235.56 to $404.50. At the current market price, the company is capitalized at $330.07 billion. Earnings per share for the last fiscal year were $25.30, placing the shares on a PE ratio of 14.09. It pays no dividend.
Apple is a well-managed company, and this is reflected in its operating margin of 30.43% as opposed to Hewlett Packard’s (NYSE:HPQ) 10.46%. It has ample room to absorb a market downturn, and with recent developments including Apple’s acceptance of Amazon’s (NASDAQ:AMZN) kindle e-book technology, the company and its shares could overshoot earnings estimates. A strong company in a go-ahead sector.
RPX Corp (RPXC): Shares are trading at $23.46 at the time of writing, at the lower end of their 52-week trading range of $20.49 to $31.41. Earnings per share for the last fiscal year were $0.42, placing the shares on a price to earnings ratio of 55.86. When compared to competitors such as Acacia Research Corporation (NASDAQ:ACTG), RPX’s shares look a little overpriced, with a far more demanding price to earnings ratio (55.86 vs. 38.16). However, the jewel in its crown could be the patents it owns on its systems and technologies. This is likely to add value in the coming years, and will give further impetus to the share price and justifies its higher rating in relation to its peers.
Pacific Biosciences of California (PACB): Shares are trading at $5.49 at the time of writing, as against their 52-week trading range of $5.420 to $17.47. At the current market price, the company is capitalized at $322.08 million. Earnings per share for the last fiscal year were -$3.72. The company recently released its 2nd quarter figures, and these showed a gross profit of $7.9 million. The bad news in the statement was the announcement that the company expects the gross margin to be lower in the future, as development costs for their now profitable PacBio RS instruments were taken in earlier quarters. The share dropped 30% on the day on the news. With R&D costs likely to fall in coming years, and income growing with new products coming on stream, we think this fall is an overdone knee-jerk reaction, and the shares look like good value at this level.
Netsuite Inc (N): Shares are trading at $27.43 at the time of writing, toward the bottom end of their 52-week trading range of $17.27 to $42.81. At the current market price, the company is capitalized at $1.84 billion. Earnings per share for the last fiscal year were -$0.47.
Netsuite is a leading provider of financial software that uses the cloud, and has a 20% market share of the Professional Services Automation market. However, when placed against a competitor such as SAP (NYSE:SAP), its numbers look dire. SAP makes money (earnings per share of $2.32 last year), and has a better gross margin. As the benefits of the cloud permeate further and deeper into the world’s businesses, Netsuite may be well placed to continue its growth, but SAP has the cash flow and balance sheet to face this threat head-on, and I would prefer to invest funds in SAP.
Illumina Inc (ILMN): Shares are trading at $46.75 at the time of writing, at the bottom end of their 52-week trading range of $46.11 to $48.50. At the current market price, the company is capitalized at $5.82 billion. Earnings per share for the last fiscal year were $0.87.
Illumina has recently signed a deal with Sequenom (NASDAQ:SQNM) to develop an FDA approved test, which could be used by other diagnostics companies. If this proves successful, the rewards could see value added to the shares of Illumina. Meanwhile, the partnership means that Illumina will not pay for any FDA submission costs. Almost a one-way bet. The company is also continuing to pursue its aggressive policy of share buy-backs, spending another $100 million to repurchase its shares, and taking the total of shares bought back since 2008 to 12 million. Investors should take note of Illumina’s confidence in itself.
Riverbed Technology Inc (RVBD): Shares are trading at $20.61, in the lower half of their 52-week trading range of $17.41 to $44.70. At the current market price, the company is capitalized at $3.79billion. Earnings per share for the last fiscal year were $0.32, placing the shares on a PE ratio of 65.22.
However, operating against rivals such as Cisco (NASDAQ:CSCO), and Juniper (NYSE:JNPR), it is hard to see how their suite of products and entry into the ‘Cloud’ can make the leap needed to propel this stock far higher. Both these competitors have the size and reach to outsell Riverbed. Cisco’s price to earnings ratio of 12.89, and Juniper’s Price to earnings ratio of 18.81, together with better operating profit margins, make these a better buy. Riverbed is one for the brave.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.