Value Added


5 Old Tech Stocks to Buy Now

Steven Goldberg

Many once-overpriced tech stocks are downright cheap. Meanwhile, the hot new merchandise looks very dangerous.



At the close of the 1990s, virtually every technology stock was wildly overpriced. Many sold at price-earnings ratios (share price divided by earnings per share) of 100 or more. Others had no price-earnings ratios because they had no profits, and some of the sexiest stocks belonged to companies that didn’t even have any revenues.

Since the 1990s, a lot of these once-treasured outfits have gone out of business or have been absorbed by healthier companies. But a number of them have grown into much stronger businesses -- even as their stock prices languish far below their 1990s levels. The upshot: Many of the stocks that were ludicrously overvalued little more than a decade ago now change hands at enticing prices.

Meanwhile, the investment bankers who power Wall Street’s initial public offering machine have launched more tech stocks. Almost all of this sparkling new merchandise is just as insanely overpriced as the tech stocks of the late 1990s were.

The technology sector is split between the good and the ridiculous. Referring to a popular tech-laden index, Grady Burkett, the associate director of technology analysts at Morningstar, says: “I wouldn’t want to own Nasdaq, but I’d own the low P/E, high-quality technology companies.”

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Below are five “old tech” stocks that should enhance almost any portfolio. My next piece will discuss five tech stocks to sell -- quickly.

Cisco Systems (symbol CSCO) powers the Internet -- from the Wi-Fi routers in homes to switches and network-management software that permits huge computer networks to communicate. Yet the stock, at $20.36, trades at just 10 times estimated earnings for the coming 12 months. Cisco’s P/E in 1999 was 130. (Current share prices are as of the February 21 close.)

Cisco faces more competition than it once did, and management plainly made some blunders. But CEO John Chambers has corrected some of his mistakes. Plus, it’s expensive for companies to switch from Cisco’s products to those of a competitor. Cisco, incidentally, began paying a dividend last April. The stock yields 1.6%.

Following Hewlett-Packard (HPQ) over the past year has been like watching a soap opera. The company has abruptly made personnel shifts at the top, as well as shifts in direction.

But the company has a lot going for it. Best known for its printers and personal computers, Hewlett is gaining an increasing percentage of its profits from providing services to businesses, as well as data storage and networking. It will take a while for the company to fully regain its footing, but the stock, at $29.35, trades at less than 7 times estimated earnings for the year ahead. That’s too cheap to ignore.

You’d think Intel (INTC), the world’s largest manufacturer of microprocessors, would fetch a premium price. You’d be wrong. At $27.16, Intel trades at just 10 times estimated year-ahead earnings. That compares with a P/E of 33 in 1999. The stock today is about as cheap as it has ever been.

Intel has dominated semiconductors for decades because, with its enormous revenues, it can and does spend more on research and development than its rivals. Competition in chips is fierce, but Intel always seems to come out on top. Its biggest challenge currently: Microprocessors from ARM Holdings PLC power most mobile devices.

Microsoft (MSFT) gets no respect. The stock, at $31.44, trades at 10 times estimated earnings. But even though the personal computer industry is mature, the Windows operating system continues to generate enormous profits for Microsoft. So does Microsoft Office. Individuals may switch to cheaper or free products for their home computers, but the switching costs for businesses are high. Meanwhile, Microsoft also rakes in nice profits from its popular Xbox video game system. The big question marks are how well Microsoft can adapt to cloud computing and whether it can make a bigger splash in mobile phones.

Symantec (SYMC), the maker of Norton anti-virus programs, is a leading provider of security software to individuals and businesses. Symantec is also big in data storage. The company should continue to grow, albeit at a slower rate as the migration to cloud computing continues. But the stock, at $17.94, trades at 10 times estimated earnings. As with the other four stocks, the P/E is just too low to ignore.

Steve Goldberg (bio) is an investment adviser in the Washington, D.C., area.



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