5 Tech Stocks To Consider Now

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

Apple (NASDAQ: AAPL) and the rise of mobile devices is a disruptive force for computer component makers. The stocks of many of these firms are trading at low valuation multiples. Are these compelling opportunities for investors?

Is AMD interested in selling itself?

Advanced Micro Devices (NYSE: AMD) is the poster child of computer component makers who are suffering a shift in consumer tastes and fallout from sluggish growth. The recent trends in the company triggered mixed reactions following a report by Reuters that the company may be exploiting other options to get out of their current crisis. Reuters reported that it hired JPMorgan to explore options, including a potential sale of its patent portfolio or the company as a whole. The reports have, however, been denied by the company spokesman, Drew Prairie.

Market participants are clearly confused. The company's shares fell around 8 percent to sell at about $2 and later surged as much as 18 percent following the Reuters report before paring gains to close up 5 percent. This was its biggest day gain since July 2011, though the shares have dropped 64 percent this year.

These mixed reports only cast a bigger cloud in the already bleak future of the company which only recently had announced a forecast for fourth-quarter sales that fell short of analysts’ estimates; and said it would cut 15 percent of its staff citing weak demand across all product lines in a challenging economic environment. This revenue projection puts the second-largest maker of personal-computer processors on course for its fourth consecutive quarterly sales decline. With this trend continuing, analysts now warn that its cash reserves may fall short of its requirements.

Advanced Micro Devices also lost its Chief Financial Officer who resigned in September. Thomas Seifert's resignation was announced following the forecast revision. While denying the reports in an e-mailed statement, Prairie said, “AMD’s board and management believe that the strategy the company is currently pursuing to drive long-term growth by leveraging AMD’s highly differentiated technology assets is the right approach to enhance shareholder value.”

Changes at Intel

After serving the company for almost four decades, Intel’s (NASDAQ: INTC) president and CEO Paul Otellini said he would resign as of May 2013.  For the last eight years Mr. Otellini was Intel’s CEO.

Intel recovered from a sharp drop in earnings by 42% in 2006 Under Otellini’s leadership. Since 2010 Otellini achieved record profit and sales. These accomplishments took place in a very rough market for personal computers and were accomplished largely by taking market share from Advanced Micro Devices.

Market research firm IHS iSuppli forecasted the very first annual decline of the global PC market, shrinking by 1.2% to 348.7 million units by the end of 2012.  In October of this year, Intel reported slim fourth quarter profit margins attributed to sluggish factory output and slow moving chip inventories.  

Intel’s Board of Directors will consider candidates from inside and outside the firm as CEO candidates. Internal candidates have always won this seat and the company has never chosen a CEO from the outside. Among the internal candidates, the board is looking at Brian Krzanich, COO; Renee James, head of Intel’s software business; and Stacy Smith, director of corporate strategy and CFO. External CEO candidates include Sanjay Jha, the former CEO of Motorola Mobility Holdings and select key officers from Qualcomm (QCOM). RBC Capital Markets analyst Doug Freeman said, “Intel should consider external candidates, including someone with experience changing course at a large company.”

The CEO’s announcement led Intel’s shares to climb less than 1%. This is a small change in comparison to the stock’s 16% decline this year.

Otellini could have run as Intel’s CEO until May 2016 before hitting the firm’s mandatory retirement age. It is possible that his decision could have been based on market-surprising problems that either he or the board did not want him to manage.

Apple Could Drop Intel

Apple is seriously considering replacing Intel processors in its Mac computers with a version of the chips that it uses in its iPhone and iPad. Some engineers advocate a shift to its own designs to make it easier to develop similar features for Macs, iPhones, and iPads.

Apple announced its semiconductor team’s ambitious plan for creating an enhanced uniform experience for all its devices by melding iOS with the Mac. This could help create smaller and thinner products without sacrificing performance.

In the past several years, Apple has integrated ARM Holdings (ARMH) technology into its iPhone and iPad. ARM licenses chip designs and technology to various phone chip companies.

Intel is absent from these future plans.

Supplying Apple Isn’t Easy

Jabil (NYSE: JBL) is a component supplier for Apple that is having problems keeping up with the tech giant. Supply constraints for the iPhone 5 could delay payback from Jabil’s capital spending. This investment helps the manufacturer make components which could readily meet the high standards Apple demands for every component. 

Apple is a tough client. While Jabil’s revenue has gone up by 2%, net income dropped 28%. Supplying Apple has protected sales, but it has harmed profits. Apple’s tough requirements for high quality iPhone 5 casings may be increasing costs.

Searching for Value

Financial ratios for these companies follow:

<table> <tbody> <tr> <td> <p><strong>Ticker</strong></p> </td> <td> <p><strong>Company</strong></p> </td> <td> <p><strong>P/E</strong></p> </td> <td> <p><strong>P/S</strong></p> </td> <td> <p><strong>P/B</strong></p> </td> <td> <p><strong>P/FCF</strong></p> </td> <td> <p><strong>D/E</strong></p> </td> <td> <p><strong>EPS Growth Next 5 Years</strong></p> </td> </tr> <tr> <td> <p>JBL</p> </td> <td> <p>Jabil Circuit</p> </td> <td> <p>10.16</p> </td> <td> <p>0.23</p> </td> <td> <p>1.86</p> </td> <td> <p>54.79</p> </td> <td> <p>0.8</p> </td> <td> <p>11.5%</p> </td> </tr> <tr> <td> <p>INTC</p> </td> <td> <p>Intel</p> </td> <td> <p>8.54</p> </td> <td> <p>1.81</p> </td> <td> <p>1.98</p> </td> <td> <p>29.91</p> </td> <td> <p>0.15</p> </td> <td> <p>10.6%</p> </td> </tr> <tr> <td> <p>AAPL</p> </td> <td> <p>Apple</p> </td> <td> <p>13.25</p> </td> <td> <p>3.52</p> </td> <td> <p>4.65</p> </td> <td> <p>13.28</p> </td> <td> <p>NA</p> </td> <td> <p>19.6%</p> </td> </tr> <tr> <td> <p>AMD</p> </td> <td> <p>Advanced Micro Devices</p> </td> <td> <p>NA</p> </td> <td> <p>0.26</p> </td> <td> <p>1.59</p> </td> <td> <p>NA</p> </td> <td> <p>2.06</p> </td> <td> <p>6.1%</p> </td> </tr> <tr> <td> <p>ARMH</p> </td> <td> <p>ARM Holdings</p> </td> <td> <p>71.77</p> </td> <td> <p>19.54</p> </td> <td> <p>9.28</p> </td> <td> <p>NA</p> </td> <td> <p>0.09</p> </td> <td> <p>18.6%</p> </td> </tr> </tbody> </table>

I would never have guessed that Intel would trade at a single-digit P/E ratio. Jabil and Intel are both very cheap and are on opposite sides of the struggle for dominance being waged between computing and mobile device giants. They are both cheaper than Apple on a price-to-earnings and a price-to-sales basis. The only cheaper company in this table is Advanced Micro Devices, and it is having issues establishing profitability and has a high level of debt financing.


Intel and Jabil are buy candidates for long-term investors. Jabil shareholders could benefit from it sales growth from its attachment to the Apple growth story. This growth is selling at attractive valuations that are comparable to those of the beleaguered Advanced Micro Devices. Intel’s future is less clear, though it is trading at low enough valuations to make it an interesting buy candidate.

BillEdson11 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple and Intel. 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!

blog comments powered by Disqus