3 Large-Cap Technology Names to Consider
Jan 25th 2013 10:15AM
Updated Jan 25th 2013 11:25AM
Stocks have opened higher today, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average up 0.3% and 0.24%, respectively, as of 10:15 a.m. EST.
With three technology bellwethers -- Apple, IBM, and Microsoft -- having reported results for the fourth quarter this week, it's worth taking a magnifying glass to the sector. As noted in yesterday's column, technology is effectively the cheapest sector in the S&P 500, which is pretty remarkable if one considers that it is also one the sectors with the highest earnings-per-share growth estimate for 2013, which suggests that it contains opportunities for patient investors.
Running through some of the valuation and profitability metrics for the sector, three large-cap names stand out to me: Cisco , Oracle , and IBM . None of these three names attracts the sort of megawatt exposure associated with consumer-focused technology brands (Apple takes the crown in this arena). Conversely, they're not exposed to the risk of fast-changing consumer preferences with regard to devices and functionality. That's an attractive combination for investors when it produces price-to-earnings ratios of less than 13 (based on estimates of the next 12 months' EPS).
All three companies cater mainly to businesses, which are much more deliberate, and therefore slower, than individuals in switching to a new technology or a new vendor. Furthermore, unlike Apple, their operating profit margins over the trailing 12 months are at or below their 10-year average; as such, their profitability is likely less vulnerable to mean-reversion -- rich profit margins attract competition! Samsung didn't earn record profits last year by giving Apple free rein over the smartphone market.
Remember: Stock picking isn't about buying the flashiest names; it's about getting more than what you pay for. The three names above aren't sexy, but they may well meet the latter criterion.
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The article 3 Large-Cap Technology Names to Consider originally appeared on Fool.com.Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him @longrunreturns. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of International Business Machines. and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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