There’s Safety in Technology Stocks!
August 27, 2008 – by Richard Band
Technological innovation has always been one of America’s trump cards, but most computer-related stocks climbed to absurd heights during the Internet boom of the late 1990s, only to plummet thereafter.
Today, a number of leading infotech firms are executing crisply on their business plans and generating loads of cash. Yet the stocks are cheaper than rags! Several of today’s best tech stocks are trading at valuations that reflect little or no premium to the overall market, despite the companies’ clearly superior fundamentals. A few even pay decent dividends! (See also, “Vishay Intertechnology (VSH): Proving Tech Stocks are Back.“)
The fact that technology stocks are growing sales and profits through the recent economic turmoil is the truest testament to this industry’s stability. These stocks offer you another chance to play off Mr. Market’s whims, perhaps padding your wallet 30% to 50% in the next 12 months! And that ain’t bad… .
Three Tech Stocks for Your Consideration
Hewlett-Packard (HPQ) recently reported its fiscal third-quarter profit jumped 14%, beating Wall Street’s expectations! Mind you, this is no minor feat. HPQ has dramatically improved its profit margins while grabbing market share away from Dell in the hotly contested personal computer business. Under the leadership of CEO Mark Hurd, the company’s sales have grown much faster than the industry, and this magnificent thoroughbred has a lot further to run. Hurd has launched a friendly $12 billion takeover bid for EDS. If Hurd can pull it off, I think HPQ could easily double its profits within the next five years.
Intel (INTC) reported a 25% earnings jump, comfortably ahead of analysts’ forecasts. These results give no indication that… the company is slowing amidst the economy’s antics. Intel is the largest semiconductor company in the world, and has maintained its dominant position at the forefront of the industry by allocating a significant amount of its resources to research and development. Speaking of resources, I love Intel’s finances: $7 billion a year of free cash flow–after capital spending–and enough cash to pay all debt seven times over. The icing on the cake? INTC pays a 2.5% dividend to shareholders. Not bad, eh?
Microsoft (MSFT) has an incredible financial record, thanks in large part to its software business. Sales have grown to $60 billion in the last 10 years, and the company is continuously looking for new ways to expand and adapt to the industry’s changing landscape. Case in point: MSFT launched the Xbox 360 console almost a year ahead of Sony’s PlayStation 3. As a result, Microsoft has gained a significant advantage in its struggle to dominate the gaming market. Currently, the stock is trading at its lowest price-earnings ratio ever (15X) as a public company. But even a modest P/E expansion, coupled with double-digit earnings growth over the next few years, could double the share price.
So there you have it. If I haven’t lifted your mood right about now, perhaps these tech stocks will at least lift your portfolio! Obviously, a diversified portfolio is the safest way to invest in Mr. Market so you don’t want to limit yourself just to technology (see also, “5 Rules for Bear Marketing Investing“).
But if you’re looking to spice things up a little and build up an adequate cash reserve along the way, dip your toe into growth-oriented stocks like this technology trio. They’re a safe bet in an economic storm!
Richard Band’s Profitable Investing strategy helps investors grow their portfolios safely and securely, while taking advantage of solid growth opportunities. And the reason so many of his subscribers have stayed with him for so long is they’ve enjoyed both the protection and the profits he has guided them to for almost two decades. Sign up now for a 6 month Risk-Free trial to Profitable Investing, get Richard’s special report on the top 5 MLPs for 2008. Now is the time to both protect your investments and position yourself for the gains you need. Start building up your portfolio now!
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