I recently reviewed the top 5 holdings of the Goodhaven Fund, a new mutual fund run by long time value investors, and was surprised to find that three of the holdings are technology stocks. In 2008-2009, I found technology stocks to be a good place to look for investment opportunities, given their tendency to have minimal or no debt, positive free cash flow, and in some cases, a dividend payout.
Given the volatility and uncertainty in the markets, I thought it might be worth taking another look at some technology companies, but this time using price to book value as a screener. Here are a few technology stocks that I found trading for book value or less, and with a market cap of at least $1B:
Alcatel-Lucent, S.A. ADR (ALU)
Alcatel-Lucent, S.A. provides products, solutions, and transformation services that enable service providers, enterprises, governments, and strategic industries to deliver voice, data, and video communication services to end-users worldwide. The company generates $21.84B in revenue, but has seen a decline of 6.8% in its most recent quarter compared to the previous year. Alcatel is priced only slightly under book value, which is $1.63/share, but it carries $2.22/share in cash on its book. Furthermore, it has a low P/E of 5.22 and price-to-sales is only 0.17. Alcatel does carry $6.03 in total debt, and a debt/equity ratio of 129.63. However, given that 12 brokers give the stock a mean price target of $3.65/share, the company may still offer investors a significant risk/reward opportunity.
AOL Inc. (AOL)
AOL Inc. operates as a Web services company that spans online content, products, and services for consumers, publishers, and advertisers. The company generates $2.22B in revenue, although this number has been declining, and diluted EPS is 0.53, giving the company a steep P/E multiple of 27.38. Both of these reflect the decline of AOL’s dial-up business, as well as the money being spent to build up AOL’s content business in hopes that the latter can replace the former. However, with the stock trading at 2/3 book value (P/B is 0.65), AOL may still offer investors a lot of upside potential. Furthermore, the company has retained the investment bank Allen & Co and M&A specialists Wachtell, Lipton, Rosen & Katz, a potential signal that AOL may be shopping itself to private equity buyers.
Echostar Corporation (SATS)
EchoStar Corporation engages in the design, development, and distribution of digital set-top boxes and related products for direct-to-home satellite and cable providers. The company has revenues of $2.44B, and experienced 42.2% year-over year growth in its most recent quarter. It generated $2.14 diluted EPS, giving it a P/E of 10.65. It also holds $1.44B in cash on its balance sheet, which comes out to $16.60/share, or ~73% of the current price. Furthermore, its book value per share is $34.79 (P/B is 0.65), 53% higher than its current price. However, the company also has $2.4B in total debt on its balance sheet and a debt/equity ratio of 79.37. Therefore, investors may want to take a closer look at EchoStar’s FCF and its ability to service this debt load before investing.
Ingram Micro Inc. (IM)
Ingram Micro Inc. distributes information technology products and supply chain solutions worldwide. The company generates $36.26B in revenue, although this recent quarter saw a 64% drop in revenue compared to the previous year. This may explain why the stock trades for 0.85x book value, with a book value of $21.29/share. On the other hand, operating cash flow is positive at $382.64M, and diluted EPS is 1.57, so the stock trades at less than 12x earnings. Furthermore, the company’s enterprise value is only 2.18B vs. a market cap of $2.77B, thanks to a healthy dose of cash ($6.81/share) and a relatively small amount of debt on its balance sheet.