5 Undervalued Tech Stocks

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Includes: AMD, IBM, INTC, NOK, ORCL
by: CRG Research

In this article, I take a look at Intel (NASDAQ:INTC), International Business Machines (NYSE:IBM), Oracle (NYSE:ORCL), Advanced Micro Devices (NASDAQ:AMD), and Nokia (NYSE:NOK); five technology companies that may offer investors upside potential that outweighs the risks.

We'll use the management effectiveness ratios (return on assets, return on equity and return on investment), book value-share, price-sales, price-book value, etc., to evaluate Intel, IBM, and Oracle.

Additionally, macro-economic indicators are provided at the end of the article. As part of investment analysis, analysts should consider both the company fundamentals and the macro-economic landscape. The macro-economic picture in the U.S. is deteriorating. In Europe, the economy is contracting.

European officials are working towards recapitalizing the banks in Spain. Also, European officials are investigating pro-economic growth policies that would reduce the sovereign risks the region is facing. Until pro-growth policies are implemented, and Spain's banks are recapitalized, sovereign risks remain.

Investment Thesis

Intel, International Business Machines, Oracle, Advanced Micro Devices, and Nokia have declined in value based on price-sales, price-book value and price-earnings ratios. Given the current valuations and effectiveness of management ratios, investors should accumulate shares of International Business Machines, Oracle, and Intel. Based on valuations investors should accumulate shares of Advanced Micro Devices. Nokia shares should be accumulated because earnings this year should surprise to the upside; the earnings surprise theory is based on the collection of nonpublic nonmaterial insider information. In other words, based on research.

However, the global economy faces headwinds from potential fiscal consolidation in the U.S., a shock to the global financial system stemming from the European Union debt crisis and slowing growth in China. Valuations could continue to decline if risks materialize and these issues could decline 25 - 50 percent from their 2012 peak values.

Investors should consider buying put options or selling call options to protect their positions.

Rating System

Buy - Be long

Neutral - No position

Sell - Be short

(The ratings, research and analysis in this article should be considered as starting point for further research.)

Intel - Buy

Intel's management is performing better than its competitors in the industry. Additionally, book value-share is increasing, the share price is declining, and the valuation ratios are declining. This could be a good level to accumulate shares.

According to the firm's financial statements, current assets decreased in the first quarter of this year compared to the fourth quarter of 2011. Additionally, current assets are greater than current liabilities; the firm is liquid. The financial leverage ratio is just under two.

Total revenue in the first quarter, compared to the year-ago quarter, increased.

In the first quarter of 2012, earnings were high quality; although, cash from operations wasn't enough to cover cash used in investing and financing.

Company v. Industry(TTM)

  • Return on Assets: 18.23 v. 1.90
  • Return on Investment: 21.99 v. 1.68
  • Return on Equity: 26.61 v. -0.67

(Company v. Industry data courtesy of Reuters)

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Book value-share is increasing; the increase is considered bullish.

The price of common equity shares is increasing. Recently the share price has increased.

Recently, price-sales (the valuation metric) increased; the enterprise is getting more expensive.

Recently, price-book value (the valuation metric) increased; the enterprise is getting more expensive.

IBM - Buy

IBM's management is performing better than its competitors in the industry. Additionally, earnings-share is increasing, the share price is declining, and the valuation ratios are declining. This could be a good level to accumulate shares.

According to the firm's financial statements, current assets decreased 4.1 percent in the first quarter of this year compared to the fourth quarter of 2011. Additionally, current assets are 28 percent greater than current liabilities; the firm is liquid. The financial leverage ratio is 5.5.

Total revenue in the first quarter, compared to the year-ago quarter, increased less than one percent.

In the first quarter of 2012, earnings were high quality; although, cash from operations wasn't enough to cover cash used in investing and financing.

Company v. Industry

  • Return on Assets : 14.07 v. 18.38
  • Return on Investment : 21.48 v. 23.06
  • Return on Equity : 74.04 v. 25.09

(Company v. Industry data courtesy of Reuters)

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Earnings-share is increasing; the increase in EPS is considered bullish.

The share price is increasing; additionally, recently the share price formed a low.

Price-sales is increasing; although, recently price-sales has declined.

Price-earnings is increasing; although, recently price-earnings has declined.

Oracle - Buy

Oracle's management is performing better than its competitors in the industry. Additionally, book value-share is increasing, the share price is declining, and the valuation ratios are declining. This could be a good level to accumulate shares of Oracle.

According to the firm's financial statements, current assets decreased 4.2 percent in the first quarter of this year compared to the year-ago quarter. Additionally, current assets are 2.2 times greater than current liabilities; the firm is liquid. The financial leverage ratio is 1.72.

Total revenue in the first quarter, compared to the year-ago quarter, increased 3.1 percent.

In the first quarter of 2012, earnings were high quality; although, cash from operations wasn't enough to cover cash used in investing and financing.

Company v. Industry

  • Return on Assets: 13.71 v. 13.26
  • Return on Investment: 16.47 v. 19.07
  • Return on Equity: 24.50 v. 22.90

(Company v. Industry data courtesy of Reuters)


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Book value-share is increasing; the increase in the valuation metric is considered bullish.

Shares of Oracle are trading near a previous support zone and could bounce from the level.

On a price-sales basis, Oracle could be considered undervalued relative to recent price-sales valuations.

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On a price-book value basis, Oracle is undervalued relative to its recent history.

AMD -- Buy

AMD's management isn't performing better than its competitors in the industry. Additionally, book value-share is decreasing, the share price is declining, and the valuation ratios are declining. This could be a good level to accumulate shares on valuation. The market should rise over the next few weeks, and AMD should increase in value.

According to the firm's financial statements, current assets decreased 1.1 percent in the first quarter of this year compared to the fourth quarter 2011. Additionally, current assets are 36 percent greater than current liabilities; the firm is liquid. The financial leverage ratio is 4.74.

Total revenue in the first quarter, compared to the year-ago quarter, decreased 1.7 percent.

In the first quarter of 2012, earnings were high quality; additionally, the firm generates cash from operations, financing and investing.

Company v. Industry

  • Return on Assets: -11.87 v. 1.92
  • Return on Investment: -18.69 v. 1.68
  • Return on Equity: -46.36 v. -0.75

(Company v. Industry data courtesy of Reuters)

Book value-share is declining: the decline is considered bearish.

Shares of AMD have been trading at lower prices over the past few months; the issue is trading at a prior support level and may bounce.

Price-sales is declining; the enterprise is undervalued relative to recent price-sales valuations.

Price-book value is increasing; the increase is caused by a decrease in book value-shares.

Nokia -- Buy

Nokia's management isn't performing better than its competitors in the industry. Additionally, book value-share is decreasing, the share price is declining, and the valuation ratios are declining. This could be a good level to accumulate shares on valuation; research suggests Nokia's earnings will surprise on the upside.

According to the firm's financial statements, current assets decreased 11.1 percent in the first quarter of this year compared to the fourth quarter 2011. Additionally, current assets are 40 percent greater than current liabilities; the firm is liquid. The financial leverage ratio is just under 3.

Total revenue in the first quarter, compared to the year-ago quarter, decreased 29 percent.

In the first quarter of 2012, earnings were high quality; additionally, the firm generates cash from investing.

Company v. Industry

  • Return on Assets: -9.50 v. 3.82
  • Return on Investment: -18.86 v. 5.22
  • Return on Equity: -19.40 v. 3.80

(Company v. Industry data courtesy of Reuters)

Book value-share is declining; the decline is considered bearish.

Shares of Nokia have been trading at lower prices over past several months.

Price-sales is declining and may be near a trough.

Price-book value is declining and may be near a trough.

Macro Environment


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ISM non-manufacturing PMI is declining; the decline in non-manufacturing PMI is considered bearish. ISM non-manufacturing PMI should stabilize in the coming months.

The pace of job growth has slowed in recent months and may stabilize at low levels.


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CB consumer confidence is increasing and may decline in the coming months. The expectation index and the present situation index both declined, according to the latest report.


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European Union services PMI is declining and should increase in the coming months.


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European Union manufacturing PMI is declining and should increase in the coming months. A silver lining from the current release of the report is that the pace of decline in Italian manufacturing is slowing. Additionally, the depth of the contraction in manufacturing has yet to reach the depth of the contraction from the financial crisis in 2009.

Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial adviser. Christopher Grosvenor does not know your financial situation and ability to bare risk and thus his opinions may not be suitable for all investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.