4 Undervalued Old Tech Stocks To Consider

by: Hedgephone

Tech stocks right now consist of new web companies with high valuations and strong growth and dinosaur players who are "too big to grow" in the eyes of most investors. We like the old guard at 7-9X earnings as we think these businesses have a strong enough moat to protect their long term competitive advantages.

Here are 4 "Old Tech" stocks that could make investors some new money:

Microsoft (NASDAQ:MSFT) shares are dirt cheap right now, trading for 8.5X earnings. While many bright people suggest that Steve Ballmer is a drag on the company's operations, I think the company's financial position and strength are less of a problem for the shares than Mr. Market's bipolar disorder, which favors companies like Salesforce.com (NYSE:CRM) and Amazon (NASDAQ:AMZN) over stocks like Microsoft. Microsoft is under pressure because most analysts see software as a dying business model and Microsoft makes most of its money from software. I take the alternative view that Microsoft is the giant in the computing arena, and it will be the giant in the cloud arena when all is said and done.

Intel (NASDAQ:INTC) shares are down around $4 from their summer highs, and given that the business beat analyst estimates and is trading for less than 8x forward earnings, now may be the time to step in and buy some Intel common stock. Because of the weakness in overall spending and consumer confidence, however, a better way to play INTC may be to sell the March 2012 $20 put options on Intel instead of directly picking up the stock. Another way to play this name would be to buy the shares and sell the October $20 call options against the stock to collect premium and to hedge your risk in the name using options.

Oracle (NYSE:ORCL) is the original Cloud Computing company and it was Marc Benioff who left Oracle to found Salesforce. At the end of the day, Ellison is still the originator of the software as a service concept. I think ORCL shares are a much better value than many of the other "cloud" stocks as it trades for just 9.9X forward earnings with a growth rate of around 15% annualized. If Oracle can grow at a 10% or greater clip, those who buy shares today should be rewarded handsomely for their risk.

Hewlett Packard (NYSE:HPQ) is a cheap stock after losing some 40% of its value in the past month or so. The name is trading for just 4.5X earnings and the company's price to operating cash flow levels makes shares a potential bargain at current levels. That said, the investment community view HP as a Kodak at this point, and have punished the stock because of the proposed sale of Compaq. HPQ could provide investors with a good put selling opportunity as well. Look to sell the January 2012 $24 put options in HPQ for a 30% per annum return if the stock stands still from here.

Disclosure: I am long HPQ, ORCL, INTC, MSFT.

Additional disclosure: I am short CRM