Earnings season started last week, but this week the fireworks really start to fly. Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC) , and Cisco Systems, Inc. (NASDAQ:CSCO) are just a few of the tech companies reporting earnings this week, and we’ll get a good idea just how the tech space is faring. There’s a lot of pessimism priced into shares, and a strong earnings report could push stocks higher.
Sorting out the winners and losers
The interesting trend to watch is where consumer dollars are going. Recent data suggests that the PC is in steep decline, presumably replaced by tablets and other mobile devices. But when we look at the valuations of companies that would benefit from tablet sales, they’re not trading any higher than those that still rely on the PC. Apple Inc. (NASDAQ:AAPL), which still dominates tablets, is less expensive than Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC) in many ways, so the market is down on everything.
Companies providing infrastructure and services, such as International Business Machines Corp. (NYSE:IBM) and Cisco Systems, Inc. (NASDAQ:CSCO), are also trading at fairly low valuations, especially when you consider their solid dividends.
| Company | Price/Book | Trailing P/E | Forward P/E | Dividend Yield |
|---|---|---|---|---|
| Microsoft | 3.3 | 15.8 | 9.3 | 3.2% |
| Intel | 2.1 | 10.2 | 10.6 | 4.2% |
| Apple | 3.2 | 9.7 | 8.7 | 2.5% |
| IBM | 12.6 | 14.7 | 11.5 | 1.6% |
| Cisco | 2.1 | 12.4 | 10.3 | 3.2% |
Source: Yahoo! Finance.
What’s interesting about the broad look at these five companies is that they’re all trading like value stocks. High levels of cash, low P/E ratios, and high dividends are a value investor’s dream. There’s still a lot of growth left in many areas of tech, though, so companies that can capitalize are going to reward investors.
Upside across these tech giants
I think Apple Inc. (NASDAQ:AAPL) is a steal right now, given its exposure to tablets and the sticky nature of its business model. I’ve been high on Microsoft in the past, because mobile is pure upside, but the PC is declining faster than I expected, and investors should be wary of a value trap here. This is the only one of these companies I wouldn’t buy today (even though I’m not selling). Intel Corporation (NASDAQ:INTC) is also just entering mobile, and I think we’ll begin to see progress in 2013, especially because expectations are so low.
No matter whether PCs or tablets are selling from store shelves, International Business Machines Corp. (NYSE:IBM)’s services are key to businesses, and Cisco Systems, Inc. (NASDAQ:CSCO)’s infrastructure products will be in demand. These aren’t sexy businesses, but they’re both great values, given the stability of these diverse businesses.
Really, there’s no reason all five of these companies can’t outperform the market in 2013.
The article Tech Giants Look Cheap Heading Into Earnings Season originally appeared on Fool.com.
Fool contributor Travis Hoium manages an account that owns shares of Apple, Microsoft Corporation (NASDAQ:MSFT), and Intel Corporation (NASDAQ:INTC). The Motley Fool recommends Apple, Cisco Systems, Inc. (NASDAQ:CSCO), and Intel and owns shares of Apple, Intel, International Business Machines Corp. (NYSE:IBM), and Microsoft.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
