While high-growth information technology stocks have rallied sharply this year, with valuations looking increasingly stretched, we’ve picked a few stocks including Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO), and NetApp (NASDAQ:NTAP) that have relatively stable and mature businesses and still offer good value. Specifically, we have picked companies that are trading at a trailing price to earnings multiple of under 18x, are seeing higher demand (Revenue expanding between 2017 and 2019), have increased their pricing power and profitability (Operating Margins expanded between 2017 and 2019), and have a market capitalization of over $2 billion. See our analysis Tech Stocks That Look Like Good Value for more details on the returns and performance of these stocks. Parts of the analysis are summarized below.
Intel ($215 billion market cap, -15% YTD), the largest CPU vendor has been somewhat out of favor with investors on account of increasing competition from lower-cost ARM-based chipsets and the company’s delay in its rollout of its next-generation 7nm CPUs. However, Intel looks like good value considering its large base of existing customers, who rely on Intel processors and are likely averse to switch and also due to its vast marketing and distribution footprint. The stock trades at about 11x 2019 earnings.
Cisco ($178 billion market cap, -10% YTD), one of the largest network equipment providers, has also underperformed the market as it has struggled with top-line and bottom-line growth. However, the increasing digitization caused by the Covid-19 pandemic could drive demand for connectivity, in turn improving sales of Cisco’s networking software, and products such as switches and routers. The stock trades at about 16x FY’19 earnings.
NetApp ($10 billion market cap, -25% YTD) is a company that sells hardware and software focused on data management. While the company has seen a mixed performance this year due to weak demand from large customers and its significant reliance on hardware sales, it is looking to double down on the cloud computing market. Last month, NetApp closed a deal to acquire Spot, a leader in compute management, and cost optimization for public clouds. The stock currently trades at about 13x last fiscal year earnings.
So, these value technology stocks might give stable returns from current levels. But, what if you’re looking for a more balanced portfolio instead? Here’s a top-quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.
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