Which Large Cap Tech Stocks Got the Most Investor Love Over the Year?

BA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you’re a tech investor, you likely didn’t get Valentine’s Day articles aimed at you last week, as chocolate-flowers-luxury goods stocks get all the love. So, consider this light-hearted (but also chock full of ranked data) piece for you, as it addresses this question:

What tech stocks have most captured the hearts of investors over the past year? 

How do we measure investors’ passion? For the lists, one simple metric: 1-year stock price appreciation.

Sure, investors could be in the throes of irrational lust, as they bid up prices in an attempt to own a piece of their hearts’ desire. However, some of these investor + stock matches will also pan out to be the real deal, too. Only time will tell…

This Matchmaker’s Screen

I won’t pretend to know the type of stock that sends your heart a flutter, so I'll keep matchmaking to a minimum. However, in an effort to screen out some of the serial heart- (and bank-) breakers, there are a few basic rules for our Tech Sweetheart Contestants:

  • Profitability -- Positive P/E and positive 1-year EPS growth
  • Operating Margin -- Over 5% for large caps; just positive for mid caps
  • Debt -- Long-term Debt/Equity (LT D/E) ratio less than 0.5
  • Short-term Liquidity -- Current Ratio over 1.0

Yes, there are some solid stocks this screen will screen out, primarily due to the debt criteria. Debt is cheap these days, and there are some solid stocks that have relatively high (for the tech industry) debt loads. IBM, with a 1.3 LT D/E ratio at 1.3, is an example. IBM's earnings and cash flow are very steady, so it can afford to be more leveraged up. Additionally, it has business segments that are more capital-intensive than other techs, such as the internet companies. No single and simple screen is perfect. The debt and liquidity combo above allows for less analysis to determine if a company can pay its short- and longer-term obligations.

(Source: Finviz; Data to Feb. 20)

Large Cap Techs (over $10 billion market cap)

  • Total Contestants in the large cap tech sector:  86
  • Number that posted positive 1-year returns:  52
  • Number that pass our screen:  28

Top 5 Large Cap Sweeties (by 1-year stock price performance):

  1. LinkedIn -- 70.8%
  2. ARM Holdings -- 55.1%
  3. Yahoo! (NASDAQ: YHOO) -- 36.2%
  4. Accenture Plc -- 31.2%  
  5. Google (NASDAQ: GOOG) -- 30.7%

Lone Wolf Lover?

You want everyone out of your stock love life, and prefer to do your own screening? OK, here are the 5 stocks in the entire large cap tech universe that have had the most passionate suitors over the year (as measured by 1-year stock price return). Caveat emptor!

  1. Sprint -- 156%
  2. Catamaran Corp. -- 79.2%
  3. LinkedIn -- %
  4. Equinix -- 61.1%
  5. ARM Holdings -- 55.1%

What the curious might want to know: 

  • Yahoo and Google were #8 and #13, respectively, out of the 86.
  • Microsoft and Apple were #63 and #65, respectively, with 1-year returns of -8.3% and -9.3%.
  • Amazon, if it were classified as a tech stock, would have ranked ____ with its 48.16% 1-year return.
  • Facebook hasn't been a public company for a year, so is a no-show among our contestants.

A few title winners based on other (than 1-year stock price performance) metrics...

The Insiders' Darling?

The Heartbreaker? (cue Bee Gees or Pat Benatar tune)

Hewlett-Packard ranked dead last with a -42.5% return.

 

 

 

Mid Cap Techs ($2-10 billion market cap)

  • Total Contestants in the mid cap tech sector: 134
  • Number that posted positive 1-year returns:  71
  • Number that pass our screen:  40

Top 10 Mid Cap Sweeties (those that pass screen, by 1-year stock price performance):

  1. AOL -- 133%
  2. Quihoo 360 Technology -- 90.9% 
  3. FEI Company -- 38.5%
  4. CommVault Systems -- 38.9%
  5. The Ultimate Software Group -- 39.1% 
  6. Mellanox Technologies -- 39.3%
  7. SolarWinds -- 44.1%
  8. ValueClick -- 37.4%
  9. Acuity Brands -- 19.9%
  10. Trimble Navigation -- 17.7%

A few title winners based on other (than 1-year stock price performance) metrics...

The Insiders' Darling? 

  • China's Quihoo 360 Technology ranks #1 in insider ownership -- 11.2% -- out of our top 10.  

The Heartbreaker? (cue Bee Gees or Pat Benatar tune)

  • Zynga, creator of Facebook games such as FarmVille, ranked dead last among the 130 tech mid caps with a 1-year return of -74.5% The stock is up about 50% from its Nov. low with some investors viewing online gambling as its jackpot. Unless you like to gamble, I'd not bet the FarmVille on a stock with a beta of nearly 4.0, train-wreck stats, and -- importantly -- little-to-no moat.  

My Personal Tech Sweethearts

Out of the winners above, Yahoo! and Google are my personal sweetheart award winners.

Yahoo! for two reasons: (1) Helping to prove me right (something all stock market writers like!); (2) Making my life easier with its superior Finance site.  As to #1, I said "speculative investors might want to consider diving in" in my favorable October 24 piece about CEO Marissa Mayer and Yahoo!. The stock's up

% in the almost 4-month period since then. I also opined that Mayer, as a 'product person,' was a wise CEO choice in my Aug. 3 piece.

Google for two reasons: (1) Bringing a smile to my face with its fun and clever Google Doodles (more, more, Google Guys!); (2) Providing an eye-pleasing respite from the internet noise with its clean Home Page.

I view Google favorably given its continued strong growth, stranglehold on Search (has approx. 70% of the U.S. market share), and innovative culture.

As for Yahoo!, I think the "easy money" has been made. That said, I think the stock still has room to run, with little downside risk. Yahoo! is still the biggest U.S. Web portal, and several of its properties, notably Mail, Finance and Sports, have muscle. So, the potential for increased monetization is there.

Mayer's made many positive changes -- faster Mail and a 'cleaner' look Home Page being two notable ones. (I've yet to digest the major Home Page makeover of Feb. 20; my initial reaction is the new blue and purple combo is too noisy for my liking, though I don't believe I am representative of what the majority likes. So, I'll withhold judgment for now. Mayer got stuck with Yahoo's purple -- but I think she should considerr phasing out much of the purple. Purple is usually considered one of men's least favorite colors and many women don't prefer it either.)

Searching for Love with a Search Engine Stock? 

Since I chose Google and Yahoo! above, let's make this a search engine stock comparison by adding Yandex (NASDAQ: YNDX), often dubbed "the Russian Google" into the mix.  

<table> <tbody> <tr> <td> </td> <td> <p><strong>Trailing P/E</strong></p> </td> <td> <p><strong>Forward P/E</strong></p> </td> <td> <p><strong>5-Yr PEG</strong></p> </td> <td> <p><strong>Operating </strong></p> <p><strong>Margin (ttm)       </strong></p> </td> <td> <p><strong>ROE (ttm)</strong></p> </td> <td> <p><strong>Debt to Equity (mrq)</strong></p> </td> <td> <p><strong>FCF Yield (ttm)</strong></p> </td> </tr> <tr> <td> <p>Google</p> </td> <td> <p>24.5</p> </td> <td> <p>14.8</p> </td> <td> <p>1.25</p> </td> <td> <p>26.7%</p> </td> <td> <p>16.6%</p> </td> <td> <p>10%</p> </td> <td> <p>4.3%</p> </td> </tr> <tr> <td> <p>Yahoo! </p> </td> <td> <p>6.5</p> </td> <td> <p>17.5</p> </td> <td> <p>1.50</p> </td> <td> <p>16.1%</p> </td> <td> <p>29.1%</p> </td> <td> <p>0.9%</p> </td> <td> <p>3.6%</p> </td> </tr> <tr> <td> <p> Yandex</p> </td> <td> <p>34.9 </p> </td> <td> <p>23.5* </p> </td> <td> <p> 1.02</p> </td> <td> <p>33.9%</p> </td> <td> <p>25.1% </p> </td> <td> <p>N/A </p> </td> <td> <p> 1.1%</p> </td> </tr> </tbody> </table>

Source: Yahoo! Finance (except as noted); Data as of Feb. 20

 which operates the dominant search engine in Russia, had been on a roll in 2013, with its stock up 19% both for the year and YTD though Feb. 15, ranking it #15 on the Mid Cap Sweetees list above. However, it

s stock ws ltvrankedOIt4Deuthrountil tTnotched numerous quarters of outrous been buuilposted 41% revenue and 34% EPS growth in its most recent (Sept.) quarter. This type of growth often bodes well for future stock price appreciation; the stock is off to a strong start in 2013 with a 19% YTD return. In Russia, Yandex has 62% market share to Google's 26% share. On a global basis, Yandex just surpassed Microsoft's Bing to capture the #4 search engine spot (behind Google, China's Baidu, and Yahoo!) based on number of November searches, according to ComScore data released last week. Online advertising in Russia rose 35% in 2012, according to the Assoc. of Communication Agencies of Russia. Select stock stats are provided in the table in the last section to provide context.

 

Like Yandex's numbers ? Me, too. The combo of fat margin and stellar revenue and earnings growth is a heady elixir for growth stock lovers. And the 5-year PEG suggests the stock is reasonably priced, to boot. The main competitive threat is mighty Google, which shouldn't be taken lightly, but Yandex has the home turf advantage in Russia.

FCF yield? It's to be expected that it would be considerably less than Google's and Yahoo's, as Yandex is a smaller company earlier in the growth stage. FCF yield is a metric better suited to more mature companies.

Takeaway

'Winners often keep winning' is a cornerstone upon which The Motley Fool's co-founder David Gardner's Rule Breakers' stock selection criteria are built. Thus, the past year's tech stock sweethearts make for a good pool from which you might find your dream stock(s).

 


BAMcKenna has no position in any stocks mentioned. The Motley Fool recommends Google and Yandex. The Motley Fool owns shares of Google. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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