Yahoo! Inc. (YHOO)
Although Yahoo! has struggled in recent periods with mismanagement and eroding market share in the lucrative search business (where Google has taken control), the company may be an attractive target given recent rumors of a potential sale. It may be too late to jump in on the initial rumor price bump but depending on demand in the M&A market, investors entering now may still realize sizable capital gains. Yahoo! remains a global brand name with a powerful media operation that might be attractive other technology companies or private equity firms.
A lot of the future success of the company (and by extension, the stock price) rests in the board's ability to find strong leadership that will be able to introduce some focus to the sprawling enterprise. The company maintains low levels of debt and has remained profitable through its difficulties. While these traits are nice, the company's eroding market share in search and its inability to develop a convincing strategy make this a play only if you believe strongly in the possibility of a pending sale.
Microsoft Corporation (MSFT)
Formerly a darling growth technology company, Microsoft has seen its stock price stagnate in recent years as other competitors have brought stronger and more innovative products to the market. With its recent acquisition of Skype and its large investment in Facebook, the company has shown an interest in entering important growth markets through partnerships that should, with successful integration, help boost both hardware and software sales. Microsoft also remains a potential acquirer for Yahoo! as the company could use the purchase to bolster its media arm.
At a price to earnings level of just 10 times, the company may appear cheap when compared to competitors like Oracle (ORCL) (17 times) and SAP (21 times). That said, the company has not shown the potential to grow at a rate that would indicate any significant appreciation in stock price. At this point, Microsoft is sitting on over $50.6 billion in cash and, unless attractive acquisition opportunities present themselves, appears likely to sit on that for the foreseeable future, inhibiting growth. The apparent lack of management dedication to growth, along with the company's reliance on continued successful launches of Windows Phones should prompt investors to look elsewhere for technology stocks to add to their portfolio.
Intel Corporation (INTC)
Intel, like many large corporations, is sitting on a significant pile of cash (over $14 billion) but unlike many of these companies, the stock has held up well in the recently volatile market. In the past month, Intel has returned double digits and is up over 20% in the past year. In addition to strong performance, the company pays a dividend of 3.1%, a figure it has consistently increased during the past decade. Investors have consistently looked to Intel for strong growth and a solid dividend, things that should continue into the future.
The company maintains extremely low levels of debt, giving the company flexibility to take advantage of opportunities not available to more highly levered companies. Additionally, it has a very strong 26% return on equity and and margins near the top of the broadline semiconductor industry. At this point, we consider Intel, with its top notch balance sheet and strong growth potential, a great addition to any value portfolio.
NVIDIA Corporation (NVDA)
NVIDIA may look out of place on this list of worldwide brand names and some of the largest companies in the world. One trait it shares with others on this list is a strong cash position, with $2.75 billion on its balance sheet. It also maintains an extremely low level of leverage. On a year to date basis, the stock has seen a dip of over 5% and has fallen over 30% since its Spring high last year. NVIDIA is strongly positioned to grow in the event of any kind of equity bull market. Even if we do not experience a complete turnaround in the market, a strong earnings report this Spring could launch NVIDIA to a price level near $20 per share.
One other thing to consider is the high level of insider buying of NVIDIA. Obviously, insider buying does not always portend price appreciation, but it seems likely that people close to the company are looking to take advantage of the currently low price level. Right now, NVIDIA offers value investors a great opportunity to add a great stock to their portfolios.
Apple Inc. (AAPL)
With the passing of founder and CEO, Steve Jobs, many investors expressed doubts about the future of the organization under new CEO Tim Cook. For the most part, the inevitable departure of Mr. Jobs seems to have been priced into the company's stock price and the stock currently trades near its all time high. CEO Tim Cook introduced the iPhone 4S, and while some commentators and consumers were initially underwhelmed, last year's sales for the revolutionary product appear to be quite strong and investors appear to approve of the move.
The company continues to out-innovate competitors and has built a brand that has gained a cult-like following in the U.S. and abroad. These traits, along with strong fundamentals make Apple a strong buy. This sentiment is obviously quite common, as many analysts and institutional investors have long been fans of the stock. Still with a price to earnings ratio of just 16 times, in line with lower growth companies like IBM (16 times) and ORCL (17 times), the stock remains inexpensive despite trading near all-time highs.
With strong sales growth that looks to accelerate in the near future and no debt, the company, new management team and all, should an integral part of any well diversified portfolio for the foreseeable future.
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