Are These Technology Companies Worthy of a Buy?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is certainly always hard to find a company trading at a reasonable discount to its true value for a variety of reasons. One can be general market euphoria creating excess demand and in some cases a bubble, such as the dot-coms in 2000, real estate in the early 2000’s, and some saying bonds now. Another reason is that, while I believe the market is not always efficient, a lot of the time it makes it difficult for an investor to find value. However, I believe these two well known technology names below are showing great value and a nice dividend yield as well for a relatively great return.
Texas Instruments (NASDAQ: TXN) is well known by this Fool for its graphing calculators, but the company does so much more in the electronics and semiconductor industry worldwide. As it celebrates its 75th anniversary in 2013 the company since its humble beginnings has grown into a $13 billion+ revenue business and a market capitalization now at $35 billion. However, as one may feel the company has little growth left, analysts disagree, calling for Texas Instruments to grow 10% per year over the next five years, and they have shown to be conservative as the company has exceeded estimates in each of the last four quarters. Moreover, with a great 2.6% dividend yield that is consistently being raised at just a 44% payout ratio, investors can reasonably expect that very nice trend to continue.
Intel (NASDAQ: INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds. Simply put, INTC is a juggernaut with over $53 billion in revenue this past year and approximately $12 billion in net income.
Moreover, the company is showing great value at just a 9x trailing price to earnings ratio, under 2x enterprise value to sales, healthy returns on equity near 25% and operating margins at 30%. Perhaps most attractively, the company yields a very nice 4.3%, far higher than the average Fortune 500 company at 2.0%, and at just a 37% payout ratio and consensus analyst estimates expecting the company to grow at 8.5% per annum over the next five years, we can reasonably expect the dividend to not only be safe, but be raised again in the near future.
Microsoft (NASDAQ: MSFT) develops, licenses, and supports a range of software products and services for various computing devices worldwide. This juggernaut of a technology company is not growing like it once did, but it continues to mint money, earning over $15.5 billion in net income and $72 billion in revenue the past twelve months alone. The company did miss consensus analyst estimates in the most recent quarter, but that looks to have created a nice buying opportunity as it sits now right near its $26.26 52-week low and trades at a historically cheap 8x forward price to earnings ratio.
In addition, with approximately $55 billion in net cash, the company has a vast number of options at its disposal and/or it can continue to reward shareholders as it has done so beautifully with it yielding a very nice 3.4% now. In addition, at just a 43% payout ratio, investors can continue to assume it will be raised in the coming quarters as management just did in the most recent quarter.
I’d like to also say I appreciate you reading my thoughts and reiterate that these are just the views of the blogger and should not serve as a substitute for any professional financial advice or counsel in general. Respectful comments and questions are always welcome below on the comment board.
Wiseinvestors has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft. 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!