2 Tech Stocks Buffett Could Buy Next, 3 He'd Likely Avoid

By Robert Fisher - January 24, 2012 | Tickers: CSCO, HPQ, INTC, JNPR, ORCL | 0 Comments

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During the last 47 years, Warren Buffett has been continually outperforming the major market averages. His basic focus is on several key areas including: earnings, profit growth, the economic environment, revenues, the total amounts of debt, cash on hand and the ability to provide investors with above average returns.

Since taking control of Berkshire Hathaway, the firm has delivered consistent performance averaging 22% a year. The basic approach that Buffett used is to examine the ability of the company to provide strong growth and lower amounts of risk. This is part of his philosophy about purchasing businesses for significant long term values.

To determine if Microsoft (NASDAQ: MSFT), Hewlett-Packard (NYSE: HPQ), Cisco (NASDAQ: CSCO), Oracle (NASDAQ: ORCL) and Juniper Networks (NYSE: JNPR) meet this criterion requires examining the fundamentals of each company. These are good stocks to consider given Buffett's recent purchase of Intel (NASDAQ: INTC)

Microsoft

Microsoft has a balance sheet with revenues of $77.12 billion, $55.94 billion in cash and $13.10 billion in debt. The profit margins are 33.01% and the operating margins is 33.78%. The earnings for the past year have been inconsistent ranging from $.77 to $.61 (see below).

Earnings per Share for Microsoft

This is based on the company experiencing challenges associated with the economy and a possible slowdown occurring. From Buffett's point of view, Microsoft is not an attractive candidate. This is attributed to the firm's inability to provide consistent results in the current economic landscape. If the earnings situation was to improve and the economy became stronger, the stock will be a good buy. This is when the large amounts of cash and revenue growth in comparison with the debt will benefit shareholders. This is the point that the fundamentals for Microsoft will improve dramatically by forcing the market price upward.

Hewlett Packard

Hewlett Packard has a balance sheet of $127.24 billion in revenues, $8.07 billion in cash and $30.63 billion in debt. The firm's profit margins are 5.56% and the operating margins are 9.43%. In the past year the earnings have been volatile ranging from $1.10 to $1.36 (see below).

Earnings per Share for Hewlett-Packard

These figures show that Buffett would not be interested in purchasing a large position, based on the inconsistent earnings, low levels of profitability and the economic sensitivity of the technology sector. If these were to improve the firm would be an attractive buy because of the high amounts of revenues in comparison to the debt and the cash position. As a result, investors should remain cautious about purchasing Hewlett-Packard until there is more consistency in earnings and the economic environment improves (which will provide investors with an above average return).

Cisco Systems

Cisco Systems has a balance sheet of $43.72 billion in revenues, $44.39 billion in cash and $16.58 billion in debt. The profit margins are 14.49% and the operating margins is 20.14%. In the past year earnings have been volatile going from $.37 to $.43 (see below).

Earnings per Share for Cisco Systems

These figures are illustrating how Buffett would be interested once there was more stability in earnings. The strong profit growth and balance sheet would make this a candidate to watch. However, Cisco is having lower demand in key market segments. Once the economy turns around is the point that this stock is a compelling buy. Until this happens, the earnings per share number will continue to remain volatile.

Oracle

Oracle has a balance sheet of $36.70 in revenues, $31.01 billion in cash and $14.78 billion in debt. The profit margins are 25.49% and the operating margins is 36.96%. In the last 52 weeks earnings have been unstable going from $.48 to $.78 (see below).

Earnings per Share for Oracle

These figures are illustrating how the stock is not an attractive candidate to buy. This is from the unstable earnings and the weakness because of slower economic growth. Once there is more consistency in these areas is when the firm will be an attractive purchase. Whereas, the strong balance sheet will support the company during some of the most volatile times. This is based on the large profit margins and cash position in comparison with the debt. As a result, investors should be watchful of these potential changes in the future. This will provide an entry point for the stock (which will deliver an above average return).

Juniper Networks

Juniper Networks has a balance sheet of $4.25 billion in revenues, $3.35 billion in cash and $999 million in debt. The profit margins of the company are 11.49% and operating margins is 16.46%. In the last year earnings have been declining from $.39 to $.28 (see below).

Earnings per Share for Juniper Networks

These figures are showing how Juniper Networks has high amounts of profit growth. The balance sheet is in very good shape, with the firm having almost as much cash ($3.25 billion) in comparison with revenues ($4.25 billion). The problem is that the earnings per share have been continually declining over the past year. This means that the stock is a potential buy in the future (once earnings have begun increasing). Moreover, the economic situation is not improving which will hurt demand for Juniper. As a result, investors should wait for some kind of strong economic and earnings growth. This is when the stock will be an attractive buy that can provide an above average return. Please note: the analysis of the above companies should be used as a starting point for any kind of further research.

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