Given the recent sell-off in the technological sector by local as well as foreign investors, a few fundamentally strong tech stocks are trading at steep discounts from their previous multiples. We have short listed five tech stocks investors must consider buying at current levels.
SIRIUS XM Radio Inc. (SIRI) With the continued increase in revenue over the years, SIRI is one of the best stocks for investment in the technology industry. SIRI is currently trading $1.79, 26% below its 52 week high of $2.44. With earning per share of 0.04, the stock currently trades at P/E of 42.56 times, which is much lower than its average P/E of triple digits witnessed in last few years. The stock has a beta of 2.27, representing high volatility.
As per the recent quarterly results, SIRI revenue grew by 6.4%, whereas its direct competitor, Cumulus Media (CMLS) revenues declined in the same period. SIRI posted gross margins of 61.79%, which is much higher than CMLS' reported margins of 40.9%. However, CMLS was able to report better operating margins.
The company is in the phase of continuous development of new audio features and other services to get the best possible share from the market, while continuing to focus on subscriber retention. This year, SIRI aims to increase its number of subscribers by 6.9% to 21.6mm from 20.2mm last year. OEM penetration, as a percentage of US auto sales, has increased tremendously in past few years; in 2010, it stood at 62% against 56% recorded in 2009. Moreover, as per the industry estimates, US auto sales are expected to grow by 12.9% in 2011, which is higher than the growth recorded in 2009 and 2010 of 10.4% and 11.6% respectively.
Over the years, the company has shown continuous increases in revenues. Revenues were recorded at $3 billion in 2010; the company expects this to further increase to $715 million in 2011. There has been significant growth in EBITDA; in 2010, it stood at $626 million, showing a growth of 35%. On the back of the company's focus on future growth and developments, we recommend that our investors to buy this stock. The stock offers an upside of 28% from its estimated target price of $2.29.
Hewlett-Packard Company (HPQ) Post the announcement of third quarter results, Hewlett-Packard Company (HPQ) faced a massive sell-off by its investors. The core reason for this decline was lower results from the market consensus and the company’s expectation for lower revenue and earnings per share in fourth quarter. The results shattered investors' confidence and led to a decline in stock price of HPQ $22.75, its lowest level in 5 years. Currently HPQ trades at $25.03, a 49% low from its 52 week high of $49.39, recorded on February 10, 2011. At current levels, with earning per share of $4.07, the stock is trading at Price/BV of 1.28 offering a dividend yield of 1.9%.
As per the latest quarterly results, HPQ recorded revenue growth of 2.5%, which is less than its direct competitor, Accenture's (ACN) growth of 20.6% and the industry average growth rate of 8.1%. HPQ's Gross margins and Operating margins were also relatively lower than ACN. Resultantly, HPQ is trading at much lower P/E of 6.05 times against ACN's P/E of 16.11 times.
We believe that investors have overplayed the company's slash in earnings forecasts, and this has dragged the stock to lowest levels. We recommend investors benefit from this steep fall and buy this stock. The stock is trading at a discount of 42% from its estimated target price of $43.00.
Intel Corporation (INTC) With earnings per share of $2.18, Intel Corporation (INTC) is trading at $19.83, offering dividend yield of 4.2%. INTC has been able to record gross margins of 63% and operating margins of 33.5%, which is much higher when compared to its direct competitor, Advanced Micro Devices, Inc. (AMD). AMD's gross and operating margins stood at 44.9% and 6.5% respectively. As per the recent quarterly results, the company’s revenue grew by 21%, whereas AMD revenue declined by 4.8%.
INTC has strong and aggressive management team which is focused on producing the best returns for investors, as is evident from revenue and operating profits of $8.7bn and $4.4bn respectively. INTC, going forward, plans to expand in networking and communications infrastructure and storage. It expects to increase market share in tablets, smart phones and converted CE devices. Also, INTC plans to benefit from the demand in emerging markets, with an aim to sell 2 out of every 3 PCs to emerging markets.
On the back of five year revenue and earning per share growth rate of 3.92% and 12.85% and strong future prospects, we recommend investors buy this stock with positive outlook. INTC offers an upside of 27% from its one year estimated target price of $25.62.
CISCO Systems Inc, (CSCO), one of the renowned names in technology, currently trades at $15.32, up 15% above its recent 52 week low of $13.30, recorded on August 9, 2011 and 38% below its high, recorded in the said period. With earning per share of $1.17, the stock offers a dividend yield of 1.6% at current levels. CSCO is trading at a discounted P/E of 13.09 times, which is less than its competitor Alcatel-Lucent (ALU) and an industry P/E of 15.04 and 18.81 respectively. However, the company has been able to record better gross and operating margins, which stood at 61.83% and 20.04% respectively. ALU and industry gross margins stood at 35.53% and 50.63% respectively and operating margins stood at 4.18% and 5.61% respectively.
A recent fall in the stock price of CSCO was mainly due to slow economic activity and public sector spending which resulted in reducing the demand for CSCO products. The company continues to see reduction in public sector demand. In the fourth quarter, public sector on global sector decreased by 4% with overall public sector orders declining by 7%. Resultantly, CSCO's orders from federal government decreased by 18%.
Keeping this challenge in mind, CSCO has made some bold decisions. Firstly, the company has decided to reduce its investments in several areas of product and solution portfolio to reduce its operating expenses by $1 billion on an annual basis. Secondly, company is focusing on its core business, including routing, switching, comprehensive security and mobility solutions. Moreover, fourth quarter results CSCO’s data centre grew by 129% year over year, adding 2000 new UCS customers to bring customers total number to 7,400.
On the back of strong management decision and plans going forward to increase its bottom line, we recommend our investors consider this stock as a long-term buy. The stock offers an upside of 24% from its estimated target price of $19.02.
Juniper Networks, Inc (JNPR) After touching one year high of $45.01 on March 8, 2011, the stock price of Juniper Networks, Inc has witnessed a steep fall, thus, giving buying opportunity to intelligent investors. At current price of $21.54 and earning per share of $1.05, the stock offers the discount of 32% from its estimated one year target price of $31.79.
As per the latest quarter, JNPR's revenue grew by 14.5%, which is much higher than growth recorded by its peers Alcatel-Lucent (ALU) and Cisco Systems, Inc. (CSCO); their revenue grew by 2.4% and 3.3% respectively. Moreover, JNPR posted higher gross margins than ALU and CSCO. However, CSCO was able to record slightly better operating margins than JNPR.
The company believes that Mobile Internet and cloud trends continue to drive demand, the company is also motivating SLT business to return to growth. JNPR continues to launch new products like QFabric, T-4000, PTX Converged Supercore, MobileNext to stream its revenue. As per its latest quarter, the company posted revenues of $1.1 billion. In the said period, JNPR has shown solid growth, as routing and switching was up 21% ($762 million) and 33% ($122 million) year on year respectively. On August 23, JNPR was upgraded to outperform from market perform by Morgan Keegan, with the price objective of $27.00. Moreover, Juniper survived the natural disaster and was able to prove itself as one of the best IT solution providers, as it was able to boost network performance from 150 microseconds to 50 microseconds. Resultantly, the stock price advanced from its previous levels.
Given the solid performance and future growth prospects of JNPR, at current P/E of 20.53 times, we recommend buy on this stock with a positive outlook.