A few months ago, many investors fell into the trap of becoming too enthusiastic about their favorite stocks and did not take profits. It is easy to get carried away when experts come on TV and say the Dow is going to 16000. By the same rule, when things look grim and experts say the markets are heading lower after a big fall, often they are wrong once again.
What most financial commentators miss is the fact that it is company earnings that drive stocks up or down, not the economy. Four bellwether hi-tech stocks that could be a good indicator of the future market direction are; Intel (INTC), Microsoft (MSFT), Cisco (CSCO) and Oracle (ORCL). None of these stocks has given any profit warnings, yet their prices are down around 20% from their highs in the last few months. They are good value at today's levels, have good growth prospects, pay a decent dividend and drip investing can pay good profits in the months and years ahead. They are also a safer place to park money than U.S. Treasury notes & bills.
In Brief on 06/26/12...
Intel's price today is $25.85, down from a recent high of $29. 27. It is still on track to deliver good profits and yields a very tasty 3.5% dividend. More than double the 10-year treasury yield. It supports a PE of only 10.35.
The recent high was around $33.30 and today's price is $29.95. It yields a dividend of 2.80% and a PE of just 10.38. It is due to launch Windows 8 soon and has many other irons in the fire to continue its new found growth.
Despite Cisco beating earnings forecasts for the past 7 quarters, the stock as been poorly treated because of the comments of its CEO John Chambers at earnings conference calls. His downbeat comments continue even though the company continues to grow and beat estimate. It is trading around $16.89 today, down from a recent high of around $21.45. It has a PE of 11.93 and yields a dividend around 2%.
Oracle today is trading around $27.75 down from a recent high of $34.30. It has a 13.79 PE and pays a dividend of just under 1%. Not quite the value of the other three stocks mentioned however, its growth prospects may outweigh its slightly higher valuations. Its recent earnings report beat the Street and it gave a favorable view forward.
All four stocks have excellent growth prospects with new products coming to market that will keep them as leaders in their respective fields. No matter what the doom and gloom merchants say, we are still in the middle of a technical revolution and buying high-quality stocks when they are out of favor usually pays off in the long haul.
If the market goes lower in coming weeks, a slow and steady drip investing each time the stock drops 5% will mean buying at better and better value. If any of the stocks mentioned comes out with a profit warning then they will fall quickly to lower levels. Even so, if we take a longer view than just a possible short-term hiccup, we will enjoy many happy returns.