The technology industry is the most demanding and fast changing industry, and often it is difficult for an investor to make a long-term investment decision on tech stocks. Given the tough competition in the industry and continued changes, I have identified four dynamic tech stocks that can be declared as home run stocks for the next decade. Along with tech stocks, I have identified one automobile stock which I believe will be a leader in any rally. The following is my analysis:
Google Inc. (GOOG):
It is evident from the tech industry that technology changes very rapidly, obsolescing previous innovations once considered successful. Since Google is in a service industry, the key is human resources and IP. Since the establishment of Google, Lary Page and Sergey Brin have worked together and performed enormously, making their way upward in search market share. In 2004, the two founders along with Eric Schmidt agreed to work for GOOG until 2024. Currently trading at the $530 level, GOOG, is currently trading at a P/E of 19.10 times and an expected five year price to earning growth ratio of 0.80. GOOG's trailing twelve month gross and operating margin stands at 65.18% and 33.62%, respectively. Its one year estimated target price stands at $720.43.
GOOG continues to innovate and launch web-based products and services which have helped increase their number of users and revenues from advertisements. Furthermore, via acquisitions and partnerships, GOOG has been able to give tough competition to its rivals. Its success story includes the acquisition of DoubleClick in 2008. Moreover, in mid-August, GOOG and Motorola Mobility Holdings, Inc. (MMI) agreed that GOOG will acquire MMI for $40.00 per share. GOOG plans to run MMI business separately, and this will enhance the competition in mobile computing. Given the boost in the technology industry and GOOG's focused management, I believe that the stock will be a home run. GOOG remains a much better bet than Yahoo! (YHOO). Therefore, I recommend long term buy on the stock.
Apple Inc (AAPL):
AAPL, the largest technology firm in term of revenue, profits and market capitalization, still holds investors and analysts’ expectations to outperform the tech market in the future. It has been more than three decades since the establishment of AAPL. The company continues to surprise the market with innovative products. Fortune magazine has ranked AAPL as the most admired company for four consecutive years (from 2008 to 2011). However, some investors were concerned about the resignation of Steve Jobs, but given the strong systems that Job was able to build at the company, this will keep the company on track to amaze the market in the future.
At current price levels of $384.62, AAPL enjoys P/E of 15.22 times. Based on 2012 earnings its forward looking P/E is of 11.91 times. With earning per share of $25.28, AAPL currently trades at price/book value of 5.14 times. Due to AAPL's ability to innovate and its power to maintain and increase its market share in the tough, competitive environment, we believe that the stock price can witness triple digit rise in the upcoming years.
On September 12, Morgan Stanley analyst Katy Huberty said that AAPL has $76 billion in cash that translates into cash per share of $81. AAPL can either use this cash to buy back its own shares or give dividends to its shareholders. Another option could be acquisition. Based on company's exclusive performance, I believe that its stock will also outperform in the market. Therefore, I recommend buy at current levels.
Cisco Systems, Inc (CSCO):
CSCO has been able to give outstanding results in its area of expertise, including consumer electronics, communication and technology. CSCO has continued to take new bold moves which have supported company’s growth. Unified Computing System [UCS] is one example; in just two years of its introduction, it is ranked number 3 in x86 blade server revenue. Now, over 10% of the world's businesses were shifted to UCS, and nearly 20% in the U.S.
Introduction of the superior CSCO 9000 (Aggressive Routers System), providing advancement and development in three areas of mobile internet services and devices such as tablets, is considered to be another powerful move towards success. These platforms will be cost-effective and simple to manage by professionals and individuals.
Currently trading at $16.35 levels, the stock enjoys P/E of 13.97 times. CSCO which is trailing twelve months gross and operating margins, stands at 61.83% and 20.04% respectively. The price to earning growth ratio (expected five years) stands at 0.99, which is slightly above industry average of 0.82.
Besides introduction of new products and services by its own divisions, CSCO also keeps an eye on market participants for possible actuations and synergies. It bought Starnet Networks (mobile tech. co.) and Moto Development Group lately to develop its Flip video camera.
Given continued aggressive moves by CSCO management, I believe that the company will post an extraordinary increase in shareholders' net worth. Therefore, the stock is short listed in the home run category. I recommended buying CSCO at current levels.
Ford Motor Company (F):
Trading at 10.17 price levels, Ford offers an upside of 79% of its one year estimated target price of $18.16. Ford enjoys a P/E ratio of 5.86 times. UBS currently has a buy on the stock with target price of $22.00. RBC capital initiated Ford in July, with a target price of $19.00. Ford has a proven history of introducing new concept cars. Its new model Evos, which is on display in the 2011 Frankfurt motor show, is considered as the next Fusion. J Mays, Ford’s design chief says that in next four months new production cars will have 85% to 90% of Evos’ design DNA.
Moreover, Ford’s Fiesta ST was also presented at the Frankfurt Motor Show along with Focus ST. The St Models targets the global market in a small package which will enable company to increase its market share in global markets. Ford has been able to deliver exciting cars that have revived existing customers, along with adding up new numbers to the base. The company is already market leader for in-car technology, and with the introduction of new designs, Ford is expected to increase its overall share. I believe that Ford will continue to inspire the market with its growth. Therefore, I recommend investors buy the stock.
SIRIUS XM Radio Inc. (SIRI):
On the back of increasing revenues over the years, SIRI makes an excellent investment opportunity. SIRI currently trades at $1.69 price levels, trading at a Price/Book value of 12.77, with earnings per share of $0.04. SIRI's stock price has moved in the band of $1.04 and $2.44 in last 52 weeks. SIRI is continuously thriving to launch new and advanced audio services in order to retain and increase its subscriber base.
SIRI faced a critical debt issue in 2009. SIRI escaped bankruptcy and managed to make arrangement with Liberty Media Corp. SIRI has proved its ability to refinance at critical situation. As of now, the situation is completely different. Since the 2009 debt issue, SIRI has been able to generate plenty of free cash flow. There is a chance that SIRI will be capable enough to buy back its own shares from the market. SIRI stock has always been volatile and traded at high multiples. As per current beta calculations SIRI is 132% more volatile than the market. Given company continues growth in revenues and increasing free cash flows, I believe that the stock will outperform the market.