Technology rules the world, but does it rule your portfolio? Here are 5 technology based companies with the promise of delivering very good returns.
Autodesk, Inc. (ADSK) – While being in the Computer and Technology Sector, ADSK has a considerably low price to earnings based on the industry. ADSK currently has a price-to-earnings ratio of 28.6, which is almost half the industry’s 50.2, yet still considerably high for the S&P 500 (SPY), which sits at 17.5. For anyone who remembers the internet bubble from over a decade ago, these types of stocks typically carry a higher price-to-earnings ratio. Because ADSK’s is lower, this could be seen as a good thing being that the company would be considered undervalued. With ADSK assisting with such releases as "Gears of War" for the Microsoft (MSFT) Xbox, there could very well be an increase in earnings as well as ongoing business for the company if the game is as successful as anticipated. Although, the company does not issue a dividend to date, and it has a beta of 2.09, which is twice as volatile as the market, the company still has room to grow with its low price-to-earnings ratio. Even with the volatility of the stock, this is one that could also be a good investment for any portfolio that is able to take a little risk.
F5 Networks Inc. (FFIV) – Another tech stock to discuss is FFIV. The company has a higher price to earnings amount of $2.73 and reflects that in its stock price. The company has a current price-to-earnings ratio of 32.2, which is fairly higher than the application software industry at 20.2. One area to note on the stock is management’s ability to create value within the company as the return on investments is -8.43%. With CSCO being one of the direct competitors for FFIV, the company has a ways to go before becoming a market leader. The company does have strong growth potential, however. FFIV is introducing new platform offerings as well as others that meet Federal Information Processing Standards. This will create business for the company as government, healthcare, and financial organizations all increase security requirements. With this release and the increasing requirement and demand of privacy and protection, it is very possible the company has nowhere to go but up. As the earnings rise, the share price will follow suit. Factor in Wall Street analysts’ mean target value for the share at $102.50 and this stock looks like a good buy right now.
Travelzoo Inc. (TZOO) – The only stock on this report that has an earnings per share in the red at -$0.10. Many investors have mixed feelings on TZOO. Some may feel that the stock is not a good investment with its disappointing return on equity of -4.23%, while others do like the stock’s financial strength with a quick ratio of 1.90 and a current ratio of 2.00. With TZOO’s industry holding an average price-to-earnings ratio of 25.0, there is room for improvement for this growth stock. The biggest competitor is Expedia Inc (EXPE), which has an earnings per share of $1.56. Probably TZOO’s biggest advantage is its gross margin of 93.19% compared with EXPE’s of 79.61. If TZOO can capitalize on this and increase sales, it could send the market leader packing. Analysts do see the price of this stock going as high as $64.00 with a mean target of $48.25. However, due to recent poor earnings results and return on equity, this stock would be one better to hold than to buy or sell.
Apple Inc. (AAPL) – The recent passing of Steve Jobs shook the entire world as one of the greatest businessmen of our generation passed away. However, with his passing, he left a great company in AAPL. Although the stock itself sits above $400, currently at $408.43 at the time of writing, the stock does not appear to be overvalued. The price-to-earnings ratio of AAPL is currently at 15.9, which is only slightly higher than the industry at 15.4. Part of the reason the price is so high is based on the company’s earnings per share, a handsome $25.28. AAPL’s biggest competitor would be Google Inc. (GOOG), which has similar earnings per share of $27.72. However, with GOOG’s price over $550, the stock’s price to earnings is slightly higher at 20.17. As AAPL releases new versions of old products, such as the iPhone 4 and iPad 2, don’t expect the stock price to drop any time soon. Although many people would like to see a stock split to drive down the cost or a dividend to pay back investors, I don’t expect to see either in the near future. Regardless, this is an extremely attractive stock to own for almost any portfolio.
Cisco Systems (CSCO) – CSCO, one of the companies involved with and affected by the internet bubble previously mentioned, is another stock that may be seen as a quality investment. This stock is one that is fairly similar to the market in regards to volatility with a beta of 1.14. The stock has a price-to-earnings ratio of 14.8, lower than the industry and S&P 500 of 17.7 and 17.5. With the stock’s current earnings per share of $1.17, it offers a dividend of $0.24. This translates into a dividend yield of only 1.40%, but some investors would rather have any dividend as opposed to no dividend at all. CSCO is doing fairly well compared with competitors although probably the biggest rival is Hewlett-Packard Company (HPQ). Even though HPQ has a market cap of about half CSCO, the company crushes the competition in earnings per share at $4.20. HPQ also has a higher dividend of $0.48, or a yield of 1.90%. Given all of this information, HPQ appears to possibly be the better buy where CSCO would be one to hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.