6 Tech Stocks That Still Look Cheap

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6 Tech Stocks That Still Look Cheap

Posted by baracc 450 days ago (http://www.smartmoney.com)

Bank stocks had a magnificent run in April, measured in percents. Year-to-date, though, no sector has beaten technology. Within the S&P 500 index, tech climbed 17% through April. That beats consumer staples and health care, sectors that are supposed to weather downturns better than others.
I can think of four possible explanations. First, tech got thumped harder than defensive industries last year -- harder than the broad market, too -- so it might have been more due for a lift this year. Second, the stock market might be signaling a pending economic recovery by promoting one of its most economically sensitive groups. Third, the economic characteristics of technology itself might have changed. That is, the group might be more defensive today than it has been in the past, since a chief way companies cut costs in a downturn is to replace costly brains with cheap computer chips. The fourth possibility is simply that the group has got overbought, in which case it might now be due to underperform.
Nos. 1 and 4 both relate to valuation. At a glance, tech looks pricey, but not glaringly so. At April’s end, the S&P 500 index traded at 15 times this year’s forecasted operating earnings. Its tech components went for 18 times earnings. Price/earnings ratios, though, are based only on companies’ shares, not the full cost to own companies outright. That cost includes debt. Tech companies, like drug makers and unlike banks, utilities and manufacturers, are relatively free of debt, and many are cash-rich, so they might be worth a bit more.
They might also be worth more if their earnings can be expected to grow relatively quickly, and that relates to No. 3 above. The good news for tech is that while profits for most companies imploded last year -- they fell 40% for the broad market and went sharply negative for banks -- tech profits fell just 7%. The bad news is that profits for the group are expected to fall another 8% this year, while those for the broad market are seen rebounding 17%. All considered, though, tech companies are indeed exhibiting better than average economic resistance to the downturn, and smoother year-to-year performance. Perhaps investors should buy tech shares less in hopes the economy is recovering than as protection in case it isn’t.
Note that the aforementioned S&P 500 numbers are dominated by large companies, since the index is weighted according to stock market value. Accordingly, beloved members like Apple (AAPL) and Google (GOOG), shares of which are each up more than 30% this year, easily decide the appearance of the group. Among tech stocks are still plenty of below-average P/E ratios, and even some dividends. Below are listed six stocks that have both.

Screen Survivors

TickerCompanyIndustrySharePricePriceChangeYTD(%)ForwardP/EYield(%)

TAT&TTelecom$26.69-6.3512.836.14

CACAApplication Software17.52-5.4510.950.91

HPQHewlett-PackardDiversified Computer37.142.3410.010.86

IBMInternational Business MachinesDiversified Computer106.1926.1811.632.07

MSFTMicrosoftApplication Software20.193.8611.742.58

ORCLOracleApplication Software18.976.9913.850.26

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