Is it Time to Buy One of These Stocks?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the Dow Jones Industrial Average sits at 13000, the NASDAQ near 3000, and the S&P 500 right near 1400, value investors like me are finding it harder to find, well..., value. It’s always tough to find stocks trading with attractive valuations, but even tougher when the general market is closing in on multi-year highs. However, IBM (NYSE: IBM) and Microsoft (NASDAQ: MSFT) are two mega-cap technology companies that still show some compelling value.
Technology giant International Business Machines, aka “Big Blue,” has had a nice run to start the year and just a few weeks back hit an all-time high of $210.69. The stock has since pulled back about 5% and sits at $200 and in light of more bullish news that came out on April 24, the stock looks to have great value. Management announced that it is raising the quarterly dividend 13% to $.85 equating to an annual dividend of $3.40 and authorizing another $7 billion for additional share repurchases. This marks the 17th consecutive year IBM has raised their quarterly dividend and since 2000 alone, the company has returned over $137 billion to shareholders in the form of dividends and share repurchases. As the stock continues to move higher, it only further proves that management is a great steward of shareholder capital. This has caught the attention of many asset managers, including Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), run by the famed investor Warren E. Buffett owning more than 5.5% of the total shares outstanding as of Dec. 31, 2011. Look for IBM to continue to march higher in the foreseeable future and management to continue rewarding shareholders.
Information Technology giant Microsoft continues to dominate the very lucrative personal computer software industry with its ubiquitous Windows and MS Office products, and this has resulted in the company generating in excess of $24 billion in free-cash-flow over the past twelve months. This massive $2 billion/month cash injection has allowed MSFT to build its huge net cash position to over $45 billion and has me thinking strongly that the already nice 2.5% dividend will be raised again as the company has a small 26% payout ratio and has a great history of doing so since it initiated its first dividend in 2003. Moreover, their Windows 8 operating system used most notably in the Nokia Lumia (NYSE: NOK) smartphone has had better than expected reviews and while I don’t believe it will pose a meaningful threat to Apple’s iPhone or Google’s Android based smartphones, any hint of good news will serve as a nice tailwind for MSFT. Add in the fact that the stock is trading at a relatively cheap 11.5x trailing P/E, 10.5x forward P/E, while sporting fantastic operating margins and returns on equity in excess of 38% over the last twelve months, and I think MSFT is a solid long-term buy.
Prohomes has no positions in the stocks mentioned above. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway, and Nokia. 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.
