By Ann McQueen
The technology sector can challenge investors. Products and services are prone to rapid obsolescence. Competition is steep. Fads and rumors are rampant. Companies come and go. The winners rely on their intellectual property to beat out their rivals. I look at five tech stocks to see how they are faring in the face of adversity.
Hewlett-Packard Company (HPQ) – Currently trading around $25 a share, HPQ has fluctuated between $21.50 and $49.39 over the past 52 weeks. Its dividend yield is 2.1 percent or $0.48. Earnings per share is $4.26, and price to earnings ratio is 5.88. Quarterly revenue growth is 1.50 percent, and quarterly earnings growth is 8.6 percent. Total debt is $25.76 billion, and total cash is $12.95 billion. Market capitalization is $44.11 billion.
Industry leader International Business Machines (IBM) is currently trading near $180 a share, which is toward the higher end of its 52-week range of $134.39 to $185.63. Its dividend yield is 1.7 percent or $3. Earnings per share is 12.32, and price to earnings ratio is 14.75. Quarterly revenue growth is 12.4 percent, and quarterly earnings growth is 8.2 percent. Total debt is $29.77 billion, and total cash is $11.79 billion.
HPQ is receiving a lot of flack from both customers and investors for several management and strategic decisions made in the past few months. In August, the company announced that it might consider either selling or spinning off its Personal Systems Group in an effort to focus on its more profitable business segments, but the rumor was quelled. Its webOS smartphones and TouchPad tablet have fallen flat with customers.
Its purchase of Autonomy Corp. this month for $10 billion has left shareholders reeling from the excessive price tag, and the purchase is leaving HPQ strapped for cash. In September, the board replaced Leo Apotheker with Meg Whitman, a decision that has left investors feeling that the board doesn’t know what it’s doing.
HPQ is trading at five to six times earnings, and this has some industry professionals feeling like they may have found a bargain in the tech giant. Too many questions remain. If management is indeed following in IBM’s footsteps toward more profitable business segments, can it really compete? HPQ customers are very disappointed. Investors are questioning the board’s ability to make sound decisions. There are too many other opportunities with stronger, more stable companies. I’m not convinced HPQ has seen the bottom.
Cisco Systems, Inc. (CSCO) – Another tech stock that has taken a beating is the communications technology and network designer CSCO. Currently trading near $17, it has fluctuated between $13.30 and $24.60 over the past 52 weeks. Its dividend yield is 1.50 percent or $0.24 a share. Earnings per share is 1.17, and price to earnings ratio is 14.32. Quarterly revenue growth is 3.3 percent, and it is showing a decline in quarterly earnings of 36.30 percent. Total debt is $16.82 billion, and total cash is $44.58 billion. Market capitalization is $83.31 billion. On Monday, it was among the 10 most actively traded Nasdaq stocks.
Its mid-cap peer Juniper Networks Inc. (JNPR) is currently trading near $19 a share, which is at the bottom of its 52-week range of $17.02 to $45.01. Earnings per share is $1.05, and its price to earnings ratio is 18.52. Quarterly revenue growth is 14.50 percent, and quarterly earnings have declined by 11.5 percent. It carries $998.96 million in debt and $3.47 billion in cash. Market capitalization is $9.1 billion.
Once known as one of the “Four Horsemen” of its sector, CSCO made huge gains in the 1990s, and investors were ecstatic. Over the past decade, however, it has remained relatively flat. It is currently trading near where it did ten years ago, thanks, at least in part, to global economic woes. Because it is maturing into a very large global player in terms of market capitalization, CSCO may have piqued the interest of dividend investors. It has paid a $0.06 dividend for two quarters this year only, which is far from promising. Research firm RBC Capital Markets upgraded its recommendation from “Underperform” to “Sector Perform” in September. Hedge fund managers have shown a lot of interest in CSCO over the past several months, but I’m not convinced it will see the same growth it did in the 90s. Maybe it will age with grace and pay higher, more consistent dividends like some of its Dow peers.
Renren Inc. (RENN) – This tech company operates an online social network in China, much like Facebook. It is currently trading around $5. Over the past 52 weeks, it has ranged from $4.50 to $24. It is showing a loss per share of $0.85. Price to earnings ratio, quarterly revenue growth and quarterly earnings growth are not available. On the bright side, it carries no debt and shows $1.23 billion in cash. Market capitalization is $1.95 billion. RENN recently announced that it will buy 56.com, a Chinese video sharing website, for $80 million in cash. There goes its cash. It went public in May at $14, so its current price is down 64 percent from its initial offering price.
RENN’s American counterpart AOL, Inc. (AOL) is currently trading near $13 with a 52-week range of $10.06 to $27.65. Earnings per share is $2.16, and price to earnings ratio is 6.12. AOL is showing a decline in quarterly revenue of 8.4 percent. Quarterly earnings data was not available. It carries $119.90 million in debt and $458.70 million in cash. Market capitalization is $1.42 billion.
Some analysts expect RENN’s revenue to increase. Many investment professionals believe RENN’s low price, recent acquisition of a potentially high-growth company, and earnings outlook create an opportunity. Not I. The regulatory risk associated with this variable interest entity is a threat. In September, Chinese regulators indicated that they are cracking down on the legal loophole that allows foreign investors to skirt Chinese rules barring their ownership in some businesses. RENN has utilized this loophole. I also feel like the Chinese Internet Bubble is about to burst. Sure, RENN is pretty cheap right now, but why bother when there are so many other opportunities without the regulatory risk?
Netflix Inc. NFLX - This Internet streaming and mail-in movie rental giant is currently trading near $123, which is on the lower end of its 52-week range of $107.63 to $304.79. It does not pay a dividend. Earnings per share is $3.94. Price to earnings ratio is higher than I like to see at 31.27. Quarterly revenue growth is promising at 51.70 percent, and quarterly earnings growth is strong at 56.70 percent. Its balance sheet shows $235.18 million in total debt and $376.41 million in cash. Market capitalization is $6.47 billion.
Amazon.com Inc. (AMZN), the online movie and bookseller, is currently trading near $222, which is toward the higher end of its 52-week range of $217.55 to $244. It does not pay a dividend. Earnings per share is $2.27, and price to earnings ratio is 97.71. Quarterly revenue growth is 51 percent, but quarterly earnings show a drop of 7.7 percent. Its balance sheet carries no debt and shows $6.36 billion in cash. Its market capitalization is much larger at $100.55 billion.
NFLX has received a lot of attention in recent headlines. Management raised prices in July and lost an estimated 1 million customers. In the weeks that followed, NFLX lost about $8 billion in value – about half. Company officials announced that is splitting its two business segments in two and renaming the mail-in DVD segment Qwikster. CEO Reed Hastings has since issued an apology, except he’s not sorry about the surprise price increase. He’s sorry for splitting NFLX in two. NFLX also lost its movie streaming agreement with Starz Entertainment but formed another with DreamWorks Animation SKG Inc. (DWA).
NFLX does not enjoy the same optimistic position as some of its tech sector counterparts. Its price is high. Its debt is relatively high. Customers are mad. Its service has lost some of its user friendliness.
F5 Networks, Inc. (FFIV) – This networking appliances company is currently trading near $86. Its 52-week range is $69.01 to $145.76. It does not pay a dividend. Earnings per share is 2.72, and price to earnings ratio is 31.54. FFIV’s quarterly revenue grew by 26.10 percent, and its quarterly earnings grew by 54.50 percent. It carries no debt. Total cash is $585.33 million. Market capitalization is $6.92 billion.
Its rival, Citrix Systems Inc. (CTXS) is currently trading near $56 a share and has fluctuated from $50.21 to $88.49 over the past 52 weeks. It does not pay a dividend. Earnings per share is $1.77, and price to earnings ratio is 31.49. Quarterly revenue growth is 15.8 percent, and quarterly earnings growth is 72.3 percent. CTXS also carries no debt and shows $898.42 million in total cash. Its market capitalization is $10.48 billion.
FFIV officials announced yesterday that its BIG-IP system has earned Oracle’s (ORCL) Database and WebLogic “ready” status, which should please customers who use both companies’ technologies and products. An analyst with William Blair & Co. announced earlier this week that he expects “significantly improved performance” for the quarter ended Sept. 30 and “materially improved demand” for FFIV’s application delivery controllers domestically and abroad.
FFIV’s share price is high, but its outlook is bright. It’s a relatively new company with management that is committed to paving the way to the future of on-demand IT services. Nontheless, amid the market's latest weakness and high correlation, FFIV is a sell.