While James "Jim" Cramer is mostly bearish on technology stocks for the Q3 of 2011, he said that there are some that are going berserk. Take Apple (AAPL) for example. After the earnings surprise, he raised his target price from $400 to $500. I checked these stocks from a fundamental perspective. I think they are extremely profitable stocks with significant upside potential. These companies are offering a true value to long-term investors. Here is a fundamental analysis of the three technology stocks picked by Cramer on July 25:
Google (GOOG) showed a fantastic recovery after its dip in Nov. 2008. One thousand dollars invested in that time is approximately $2,372 now. With a market capitalization of $200.6 billion as of July 26, the California-based Google shows a trailing P/E ratio of 24.0 and a forward P/E ratio of 14.84. Analysts expect the company to have an annualized EPS growth of 19.14% in the next five years, which sounds conservative given the 39.28% EPS growth of the last five years. Google has a profit margin of 27.05% with no dividend policy.
Debts are at extremely low rates for the last five quarters. ROA is 16.24%, and the stock is currently trading 3.18% lower than its 52-week high. SMA200 is 8.43%, while SMA50 is 17.98%. Target price is $731.58, which implies a 17.5% upside potential. Google had a 28.89% EPS growth this year, and 34.66% this quarter. While gross margin is 65.18%, operating margin is 32.13%. SMA20 is 13.07%. Institutions own 80.74% of the stock. Six out of 10 analysts recommend buying Google stocks, while two of them suggest outperform. Average recommendation rate for Google is 1.80 (1=Buy, 5=Sell). Google went truly “berserk” since mid-June, leapfrogging from $480s to $622.52. I believe this upward trend will continue for a while.
Apple's iPad outsold Android tablets by 24 to 1. Who dares to say that Apple will fail one day? The stock jumped from $340 to $403.41 since July 1. Q3 earnings of Apple increased by 125%, leapfrogging from $3.25 billion to $7.31 billion. As of the July 26 close, Apple was trading at a P/E ratio of 15.9, and a forward P/E ratio of 12.5. Market cap of the company is $374.0 billion. Estimated annual EPS growth for the next five years is 20.44%, which is quite conservative when its 57.78% EPS growth of the past five years is considered. Profit margin in 2010 was 23.53%. The stock got an upgrade from Cramer. As may have already been mentioned, he raised his target price from $400 to $500.
ROE is 41.99%, while ROE is 27.53%. Operating margin is 30.43%. Target price is $487.73, which indicates a 20.9% increase potential. SMA50 is 17.27%, and SMA200 is 20.29%. Earnings increased by 66.91% this year, and 122.15% this quarter. SMA20 is 12.00%. The company returned 55.5% in a year. My fair-value estimate for Apple is $430 per share. The company has zero debts for the last five years, while analysts give a 1.60 recommendation (1=Buy, 5=Sell). Although it became overpriced thanks to new iPhone, I believe the upward trend is far from fading away until the beginning of Q4. A large amount of profit can be made until then.
Microsoft (MSFT) just announced that it finished development work for its phone Mango. As of July 26, Microsoft has a market capitalization of $236.79 billion, a trailing P/E ratio of 11.2, and a forward P/E ratio of 8.8. Analysts estimate an 11.83% annualized EPS growth for the next five years, which is quite reasonable given the 10.43% EPS growth of the past five years. With a dividend yield of 2.28%, Microsoft had a profit margin of 33.10% in 2010, above the industry average of 27.1%.
Those who caught the dip in Mar. 2009 made serious profits. One thousand dollars invested then is about $1,837 now. Yields are consistent. Debt-to assets ratio is strolling around 10% for the last four quarters. The company had an EPS growth of 28.20% this year, and 34.59% this quarter. Target price is $32.96, which indicates a 17.3% upside movement potential. ROA is 23.61%, while ROE is 43.96%. It is currently trading 3.48% lower than its 52-week high. With an impressive gross margin of 78.1%, Microsoft has an operating margin of 39.2%. SMA50 is 11.30%, and SMA200 is 7.98%. PEG value is 0.8, while its O-Metrix score is 7.055. Every fundamental indicator suggests Microsoft as a screaming buy. Microsoft has been doing remarkably since mid-June. The stock returned 17% since then. My fair value estimation for Microsoft is $46 per share, according to my five-year discounted-earnings-plus-book-value model (full analysis here). Although it has been a rough year for Microsoft, long-term profits are no sweat for the company. Following is the recent dividend history of Microsoft per share:
May 17, 2011 | $0.16 |
Feb 15, 2011 | $0.16 |
Nov 16, 2010 | $0.16 |
Aug 17, 2010 | $0.13 |