For the year, the tech sector is up 18%. This despite a sharp sell off in recent weeks. I still see the tech sector as one of the highest-growth sectors, with many top performers delivering strong and rapid growth. The sector is worth trillions of dollars, with a number of fast-moving companies attracting the attention of investment managers with their strong fundamentals, even as many of their sky-high share prices can make others gulp.
Many tech stocks are one shot wonders, rolling out a new technology, and they become shooting stars. But all too often their rapid ascent is snuffed out when they begin to transition to a new,more mature businss stage filled with competition. Mature tech stocks that have been providing magnificent total returns to investors in the past are well worth investing in, as these companies have learned the art of constant innovation and repositioning according to the dynamic environment.
Financials: Amazon’s recent closing price was $237.56, within a 52-week trading range of $166.97 – $264.11. Amazon currently trades at a Price to Earnings ratio (PE) of 2,828.10 with an earnings per share of $0.08. The Company has a current ratio of 1.04. It has profit margin of 0.07% and operating margin of 0.93%. The company pays no dividends
Profile & Recent News: Amazon is one of the largest online marketplaces, having grown originally from merely selling books, tapes and movies to now almost anything. The company has been investing heavily into activities like digital publishing, which is mainly why earnings have fallen. The online retailer also has offered some users membership to its subscription-based shipping and streaming service for a monthly fee, intensifying competition with media rival Netflix Inc. (NFLX).
Amazon also manufactures and sells Kindle devices. European Union regulators are set to end an antitrust probe into e-book prices. The Eu is expected to accept an offer by Apple and four publishers to ease price restrictions on Amazon that allow it to sell e-books cheaper thanits rivals in the fast-growing market. However there is lots of competition and Amazon is already slashing its Kindle prices, by 5% to $100, in Japan before it has shipped a single device.
A stronger 3Q report cheered investors while the company is expected to benefit from a healthy online holiday shopping season, expected to increase sales by double digits, year-over-year. However as the eye-popping PE ratio attests, Amazon has not found a way to turn its new era investments into profits. If it can, then its stratospheric share price is worth it. However I would want to see more evidence that the new business models are actually performing before I would advise investing.
Financials: Apple’s recent closing price was $547.06, within a 52-week trading range of $363.32 -$705.07. The company currently trades at a Price to Earnings ratio (PE) of 13.20 with earnings per share of $44.15. Apple has a current ratio of 1.50. It has profit margin of 26.67% and operating margin of 35.30%. It declared a cash dividend of $2.65 per common share, payable on November 15 to shareholders of record as of November 12, annual yield on the dividend is 1.72%, with a payout ratio of an incredibly conservative 6%.
Profile & Recent News: Apple Inc. is the iconic face of technical innovation – starting with personal computing with the Mac and broadening out into personal electronics with the iPod, iPhone and iPad. Apple has carve out a unique market segment, with fanatical customers willing to spend more for its products than competitor’s products. Apple enjoys a profit margin of about 45% on iPad’s and the company has a howling flood for free cash flow.
The company is ridiculously valued by many measures, the 13.20 PE Ratio the most obvious. Yet there are concerns. While sales in 2012 are setting records, the company has a short product cycle. Company revenues are tied to its ability to continually evolve new products and upgrade/redesign new models on an annual basis. This was taken for granted when the company’s founder and innovation Godfather oversaw the R&D pipeline. However now that he has sadly passed away questions remain if the company can continue his legacy.
Looking at the price and return on equity numbers from the accompanying chart, it appears the price had gotten ahead of itself a bit in 2012. However the recent correction has returned Apple closer to its more recent growth line. I panned Apple earlier this year, believing that a price north of $700 a share was unsustainable and in fact it has come down over 20% since those heady days of September. Now though, I think the company’s shares are well priced and offer an excellent opportunity for 2013.
Financials: Google’s recent closing price was $681.72, within a 52-week trading range of $556.52 – $774.38. The company currently trades at a Price to Earnings ratio of 21.36 with earnings per share of $31.91. Google has a current ratio of 3.94. It has a profit margin of 22.20% and an operating margin of 28.06%. It pays no dividends.
Profile & Recent News: Google is the web leading search platform. The company boasts of a fortress-like balance sheet, with a debt/equity ratio of only 0.11 and current ratio of almost 4. Its return on equity has plummeted to a “mere” 17% as more and more people are using mobile devices to search the Internet. However the company recently announced a major campaign to grow into the mobile market.
Google has purchased more than 100 companies in 14 years and I expect management’s solution will involve using its cash horde to purchase an answer.
Overall the future of computing, whether mobile or desktop will impact how companies like Google will grow into the future. This will remain a concern until Google can provide more details into its mobile future. I addition, several key senior managers have left the company, their heads turned by competitors Yahoo (YHOO) and Apple.
Financials: Intel’s recent closing price was $21.73, within a 52-week trading range of $21.22 -$29.27. The company currently trades at a Price to Earnings ratio of 9.48 with earnings per share of $2.29. Intel has a current ratio of 1.93. It has a profit margin of 22.13% and an operating margin of 29.92%. The Company declared a quarterly dividend of 22.5 cents per common share, payable on December 1st to shareholders of record as of November 7. The annual yield on the dividend is 4.1%, with a payout ratio of 37%.
Profile & Recent News: Intel designs, manufactures and sells computer components. The biggest driver to Intel’s recent share price are reports that Apple is investigating a transition away from Intel’s x86 chips to ARM-based processors in its OS X product line.
Intel, whose processors run more than 80 percent of the world’s computers, has struggled to achieve comparable success in the market for chips that run phones and tablets. The company is pushing a new line of thinner and lighter notebook computers — called Ultrabooks — to rekindle demand for its chips. Intel plan to invest as much as $4.1 billion in Dutch chip-equipment maker ASML Holding NV (ASML) in an effort to shave two years from the time to adopt new production techniques.
While the price is tempting, I would still want to wait and see how things work out on its new initiatives before I committed to Intel.
So, in conclusion I must admit I have a much different outlook now than I did in September. At that time I was cautioning that Apple at $700 was unworthy of a purchase, while even holding shares was chancy. However now that it has retreated to its historical valuation curve I think it is the buy for this group. In my mind the best stock to own in 2013 out of this group is Apple.