Top 5 Tech Stocks for Fall 2012 - #5

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

With fall officially kicking off this past weekend, it is time again to take a look at which technology stocks will outperform the market in this traditionally strong period for technology.  Our list of Top 5 Tech Stocks last fall at Fastball Financial produced a 5.9% return versus 1.3% for the S&P 500.  We strive to meet or exceed last year's results with our 2012 list.  We will publish one stock per day until all five are unveiled.  Be sure to check back on this Motley Fool profile each day to see the rest of this list.

Who Didn’t Make the List This Year?

Intel (NASDAQ: INTC)—This chipmaker has taken a beating lately as investors have clearly lumped it in the "death of the PC" crowd.  They certainly will be hurt by that, but have plenty of other segments to keep them successful for a long time.  I am still a fan of Intel, but it was a far easier pick last year with a 4% dividend yield.  Right now, it “only” has 3.9% dividend.  That’s still excellent, and provides a great opportunity.  But only five stocks made the cut on this series, and I’m not sure whether Intel will provide the same 8.2% returns it did while on last year’s list.  Intel could be held down for a little while with the fading PC market.

Red Hat (NYSE: RHT)—Red Hat produces open source enterprise software solutions, most notably Linix and JBoss middleware.  It gave us a 14% return while on last year’s list.  It has been on a tear over the past year, going from $40 to $55.  Similar to Intel, I still like RHT, but it’s tough to recommend the stock after that big run higher.  Red Hat has a bright future ahead of it, but it's tough to recommend it too highly over the next few months.

ARM Holdings (NASDAQ: ARMH)—ARM is a technology Intellectual Property company, meaning that they develop the technology and then charge other companies a fee to use the technology they've developed.  They make 50% of their revenue off royalties and 37% of their revenue off licensing.  This is one stock that didn’t work for us last year and hasn’t moved much at all over the past year.  ARM has a ton of great intellectual property, but that unfortunately hasn’t translated into gains for its investors.

Timeframe

For purposes of evaluating our success versus the S&P 500, we are using the three month period from September 24 through December 21, that being an important period in the fall for technology spending.  Without further ado, we begin with our #5 Tech stock for the fall.

#5 - Accenture

Accenture (NYSE: ACN) operates one of the largest technology, consulting and outsourcing operations in the world.  Their most recent quarter showed revenue growth across the board at 9% in constant currency.  In management’s own words:

“Revenue growth was driven by continued strength in outsourcing and demand that spans our global operating groups for our diverse mix of service offerings. We also delivered overall margin expansion and continue to drive strong cash flow. We achieved double-digit EPS growth for the quarter, reflecting the profitable growth in our business. And we continue to have a strong balance sheet.”

Valuation

One of the more attractive aspects of Accenture is its stability.  You can see from the chart below that Accenture has experienced a relatively steady rise with the significant dip of course being at the end of 2008 when nearly everything dropped.  The current P/E of 17 is relatively in-line with its recent history.  Its profit margins have been terrific and have held steady at roughly 31%.

 

Return on Equity

One of the more exciting metrics for Accenture is its Return on Equity (ROE).  ROE calculates the profit that the company earned, compared to its Shareholder’s Equity.  This metric is important to monitor because some companies can show good earnings growth, but if all they are doing is sitting on that earnings growth, the returns on their accumulated equity will start to decrease.  Accenture has a 58% return on equity, which is fantastic and has been very  consistent, spiking only during the 2008 downturn.

Bottom Line

It may not be super sexy, but Accenture is providing excellent returns at a very fair valuation.  Combined with its 2.1% dividend, Accenture is a great long-term investment.  I think it will perform well over the next couple months also.

Interested in Additional Analysis?

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Zaegs has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Accenture Ltd. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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