Despite the lingering lessons of the Internet bubble of 1995-2000, tech stocks continue to pique the interests of investors. Understanding these stocks and navigating the maze of choices can be challenging. When considering stocks in this sector, investors should always pay attention to fundamental metrics and ask the right questions. Are the products and services offered meaningful to clients and valuable to consumers? What are analysts and writers saying about them? I consider a few main points about these five tech stocks to determine if they are wise buys, and if so, for whom.
Intel Corporation (NASDAQ:INTC) – This large-cap microchip maker is currently trading near $21 a share. Its closing price has fluctuated between $18.90 and $23.96 over the past 52 weeks. Its dividend yield is 3.9% or $0.84 a share. INTC has paid a quarterly dividend for over 25 years. Its most recent payment on August 3 was $0.21, up from $0.181 paid in May. Earnings per share is $2.18, and price to earnings ratio is 9.74. INTC’s profit margin is 25.29%. Quarterly revenue growth is 21.10%, and quarterly earnings growth is 2.30%. It carries $2.35 billion in total debt and shows $11.55 billion in total cash. Market capitalization is $111.43 billion.
Its less mature counterpart Advanced Micro Devices Inc. (NYSE:AMD) is currently trading near $4.70 a share. It has ranged from $4.31 to $9.58 over the past year. It does not pay a dividend. Earnings per share is $1.12, and its price to earnings ratio is 4.20. Profit margin is 12.83%. AMD posted a decline in quarterly revenue of 4.80%. It carries $2.2 billion in debt and shows $1.86 billion in cash. Market capitalization is $3.26 billion.
Yesterday’s news focused on INTC’s purchase of Telmap, an Israeli mobile navigation software designer, for $300 million to $350 million. It expects revenue to reach $33 million for 2011 and show a profit for the second year in a row. Analyst recommendations for INTC trend mostly toward “Hold,” but “Strong Buys” and “Buys” are common, too.
Long-term and income investors should consider INTC as a foundation tech stock. I like its price and valuation metrics. Its dividend is attractive. I like its recent acquisition. Its global proliferation and commitment to performance are clear, and its debt is in check.
IBM (NYSE:IBM) – This mega-cap information technology service provider is currently trading near $175. It has closed between $136.12 and $185.63 over the past 52 weeks. Its dividend yield is 1.7% or $3 a share. IBM boasts a long and consistent dividend payment history. It paid a quarterly dividend of $0.75 a share on Aug. 8. Earnings per share is $12.32, and price to earnings ratio is 14.19. Its profit margin is 14.70%. Quarterly revenue has grown by 12.40%, and quarterly earnings have grown by 8.20%. IBM carries a lot of debt at $29.77 billion. It shows $11.79 billion in cash. Its market capitalization is $208.69 billion.
Its large-cap counterpart is Microsoft Corporation (NASDAQ:MSFT), with a market capitalization of $212.31 billion and is currently trading near $26 a share. Its 52-week range is $23.65 to $29.46. MSFT’s dividend yield is 3.2% or $0.80. Its payment history dates to 2003. Most recently, MSFT paid a quarterly dividend of $0.16 in August. Earnings per share is $2.69, and its price to earnings ratio is 9.66. MSFT’s profit margin is 33.10%. Quarterly revenue growth is steady at 8.30%, and quarterly earnings growth is strong at 30%. MSFT carries debt of $13.14 billion and shows cash of $51.37 billion.
IBM is looking for acquisitions. The company is busy forming partnerships like the one with the High Energy Accelerator Research Organization of Japan to develop servers and data storage units. It remains a star player in cloud computing. The most prevalent analyst recommendation is “Hold,” but there are almost as many issuing “Buys” and “Strong Buys.”
IBM is priced a little high in terms of its three-digit price tag, but it is trading at 14 times earnings. Still, I like its rock solid fundamentals and its dividend track record. It faces stiff competition, but it always has. The company has embraced new initiatives that will drive growth. Investors looking for a solid tech stock should consider IBM. It is a prospective long-term, dividend paying foundation stock that can be dollar-cost averaged over time. Newer investors and those with less cash on hand may be better off considering a lower priced stock.
Google Inc. (NASDAQ:GOOG) – The search engine giant is trading near $502. It has ranged from $473.02 to $642.96 over the past 52 weeks. It does not pay a dividend. Earnings per share is $27.72, and price to earnings ratio is 18.11. Its profit margin is 27.05%. Both quarterly revenue growth and quarterly earnings growth are strong at 32.30% and 36.10%, respectively. Total debt of $6.41 billion is balanced by $39.12 billion in cash. Market capitalization is $162.06 billion.
Yahoo (NASDAQ:YHOO) is trading near $14.50, and it has fluctuated from $11.09 to $18.84 over the past year. It does not pay a dividend. Earnings per share is $0.88, and price to earnings ratio is 16.39. YHOO’s profit margin is 20.97%. It shows a decline in quarterly revenue of 23.3% and quarterly earnings growth of 11.10%. Total debt is $40 million, and total cash is $2.55 billion. Market capitalization is $18.26 billion.
In August, GOOG announced that it would pay $12.5 billion or $40 a share for Motorola Mobility (NYSE:MMI), which is a 63% premium over market price at the time. The acquisition is said to hedge against patent litigation on GOOG’s Android operating system used in mobile devices. The U.S. Department of Justice is looking into the purchase. At least four research firms have initiated coverage of GOOG this year, with three issuing “Buy” recommendations and the fourth issuing a “Hold.” Estimates point to continued growth. Quarterly and yearly earnings are expected to increase, though not as much as industry estimates.
I don’t like GOOG’s $502 price tag, even in light of its price to earnings ratio and generally solid fundamentals. I also don’t like its lack of dividend payment history. For investors who are not afraid to tie up the amount of money necessary to purchase shares, it will probably perform over time. As the company continues to mature, management may someday decide to pay a dividend or split shares. There are plenty of solid tech stocks that are trading for far less that newer investors with less money can consider.
Apple Inc. (NASDAQ:AAPL) – This computer manufacturing giant is currently trading near $371, which is on the higher side of its 52-week trading range of $281.82 to $422.85. AAPL does not pay a dividend. Earnings per share is $25.28, and its price to earnings ratio is 14.74. AAPL’s profit margin is 23.53%, and its growth figures appear quite strong. Quarterly revenue growth is 82%, and quarterly earnings growth is 124.70%. It doesn’t carry any debt and has $28.4 billion on hand. Market capitalization is $338.56 billion.
Its rival Research In Motion Inc. (RIMM) is currently trading near $21.90. Its price has been quite volatile over the past year, ranging from a low of $19.29 to a high of $70.54. It does not pay a dividend. Earnings per share is $5.48, and price to earnings ratio is 3.99. RIMM’s profit margin is 14.25%. Quarterly revenue has declined by 9.8%, and quarterly earnings have declined by 58.70%. It does not carry any debt. Market capitalization is $11.39 billion.
AAPL’s unveiling of its iPhone 4S has left everyone discussing its lukewarm reception. Really? Then why is everybody talking about it? Reports say that investors would have preferred a different look and name, perhaps more consistent with expectations of the highly anticipated iPhone 5. Shares were down slightly in Wednesday morning trading. Analysts are concerned that consumers may see the new product as too close to its predecessor and opt out of purchasing it. They are also concerned about AAPL’s pace of innovation in light of the amount of time it has taken to release this product, and industry professionals say the new phone’s alleged flop is an opportunity for competitors. Some product review critics are commending the smart phone’s really cool new features, like its compatibility with both major forms of mobile technology, its highly intelligent voice command system that answers questions like “Do I need my raincoat today?” and its ability to read e-mail messages when its user is driving.
I like AAPL products, but its high share price is prohibitive to many investors. I bought a Mac when prices dropped to levels that were competitive with its rival PC manufacturers. I hope to see its share price reach a level at which more market participants can climb aboard, but certainly not at the expense of its value. It’s a nice stock.
Sirius XM Radio Inc. (NASDAQ:SIRI) – This satellite radio provider is currently trading near $1.45. Its 52-week range is $1.22 to $2.44. It does not pay a dividend. Earnings per share is $0.04, and price to earnings ratio is 34.37. SIRI’s profit margin is 8.13%. Quarterly revenue growth is 6.4%, but quarterly earnings growth is 1,034.90%. Total debt is $3.02 billion, and total cash is $528.33 million. Market capitalization is $5.43 billion.
Its smaller cap rival Cumulus Media Inc. (NASDAQ:CMLS) is currently trading near $2.70 with a 52-week range of $2.18 to $5.78. Earnings per share is $0.81, and price to earnings ratio is 3.35. CMLS’s profit margin is 13.13%. It is showing declines in quarterly revenue and quarter earnings of 0.80% and 89.10%, respectively. It shows $610 million in total debt and $29.55 million in total cash. CMLS’s market capitalization is $141.76 million.
SIRI and Subaru of America announced a deal on Tuesday that brings satellite radio equipment and service as options on new models beginning next year. New car sales in September beat expectations, which fares well for SIRI’s access to potential new customers. Recommendations trend toward “Hold,” “Buy” and “Strong Buy.” Revenue is expected be slightly up for the quarter and the year.
SIRI’s low share price may raise questions, but it can also signal an opportunity. Its price to earnings ratio sends mixed messages. Its growth potential is real. SIRI is not a stock for everyone, however, it can serve certain investors well. Those with adequate diversification and tolerance for some risk may consider SIRI, but I wouldn’t recommend it at a foundation stock since it remains speculative.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.