Many investors are familiar with Microsoft Corporation (NASDAQ:MSFT), IBM (NYSE:IBM), and Oracle Corporation (NASDAQ:ORCL), three blue chip companies that symbolize American technical and economic power. With the current fundamental statistics, these companies could also be considered value stocks. The Price/Earnings To Growth (PEG) ratios for Microsoft, IBM, and Oracle are 1.3, 1.13, and 0.92, respectively, meaning that earnings are expected to grow moderately and the price to earnings ratio is low.
Over the past 10 years, you can see that earnings per share for these companies has grown consistently and steadily higher. You will notice that during the 2008 recession, Oracle and Microsoft saw a slight downward trend in earnings, but this appears to have been a temporary symptom of the economic downturn. By 2010, business was back to normal.
Microsoft's quarterly earnings per share has grown steadily over 10 years, from less than 20 cents in 2004 to nearly 80 cents per share in 2012. During that same time period, the price per share has barely budged.
Click to enlarge
IBM's quarterly earnings have consistently trended upwards with the most predictable trend imaginable. In the past 10 years, the stock has doubled, while earnings per share has almost quadrupled.
Oracle's quarterly earnings show the same upward trend. During the past 10 years, Oracle stock has nearly tripled, while earnings have more than tripled.
Earnings for these three technical giants have risen steadily. They have competitive advantages in size and branding. During recessions, they have remained profitable.
Yet, for some reason, each company has seen the Price to Earnings ratio decline. The stagnation in stock price is most likely due to the sectors falling out of favor with investors and the companies losing some of the appeal they had during the tech boom of the late 1990s.
Many legendary investors have looked at price to earnings ratios, earnings growth, and earnings consistency when evaluating stocks. These three stocks show all of the necessary components to be considered value picks. If you are looking for safety, you should consider the strength of earnings during recent recessions. None of these companies recorded losses during the period, which is a testament to their strong contract power and the brands they carry.
If you are considering bonds, two out of three of these companies have dividend yields that are higher than the rate on a 10-year Treasury (1.5%). There are many reasons to go long and very few investment reasons to argue against buying.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.