Last week, without much fanfare, technology investors marked the 10 year anniversary of the top of the NASDAQ.
I know. You don’t want to be reminded.
On Mar 10, 2000, as everyone knows, the NASDAQ peaked at 5048, having doubled from the year before. It had a forward P/E ratio, depending on what sources you look at, of over 200 times earnings.
In contrast, the S&P 500 at the same time had a P/E ratio just north of 40, which is still sky-high expensive but not nearly what was happening in Techland.
The bust wiped away trillions of investor wealth and left many investors in technology stocks with a decade of subpar returns and a bitter taste in their mouths.
But that was then, and this is now.
Could There Now Be Value in Tech?
Waking up on Mar 10, 2010, investors find themselves in a whole new world where some technology shares are, dare I say it, cheap.
Sure, Amazon.com has gone ballistic (again), and is trading at 44x forward earnings. But if you dig around, you can find some top names that are trading with P/Es under 15, have rising estimates, and some growth to boot.
10 years later, value investors can look to technology as a sector with some bargains.
Who would have guessed?
4 Value Tech Stocks
Be sure to check out the charts below. I put in the 20-year charts just as a reminder of how high, and low, these stocks have come. It’s certainly been a wild ride.
Microsoft Corporation (MSFT), the software giant and a darling of the dot-com boom, is popping up as a value stock ten years after it was among the more expensive large cap tech stocks.
The stock is trading with a forward P/E of 14.8, a far cry from its boom years when it was consistently trading over 50 times its earnings.
Estimates have recently been mixed for fiscal 2010, with some rising and some falling. The full year Zacks Consensus Estimate, however, is up 2 cents to $2.00 per share in the last month. Analysts expect 17.8% earnings growth in 2010 and another 10.5% in 2011.
The company has an amazing 1-year return on equity (ROE) of 43.3%, far above the industry average of 9.9%. It also is one of the few technology stocks paying a dividend. MSFT currently yields 1.75%.
Microsoft is a Zacks #1 Rank (strong buy) stock.
SanDisk Corporation (SNDK), the manufacturer of flash memory cards, has seen earnings jump over the last year as tech sales rebounded.
3 estimates have moved higher for 2010 as the Zacks Consensus Estimate climbed to $2.41 from $1.87 per share in the last 30 days. Analysts now expect earnings growth of 49.69% in 2010.
SanDisk is a value stock, with a forward P/E of 13.8. With its higher growth rate it has a PEG ratio under 1.00, of 0.96, which indicates value.
SanDisk is a Zacks #1 Rank (strong buy) stock.
Teradyne Inc. (TER), the supplier of Automatic Test Equipment to the semiconductor industry, is the cheapest of the four value stocks trading at just 11.5x forward earnings.
Earnings are expected to take off in 2010 as analysts see 450.5% earnings growth compared to the loss of 27 cents in 2009. The 2010 Zacks Consensus Estimate has jumped to 95 cents from 68 cents in the last 90 days.
With its growth rate, Teradyne also has a low PEG ratio of just 0.77, putting it squarely in the value stock camp.
Teradyne is a Zacks #2 Rank (buy) stock.
Vishay Intertechnology Inc. (VSH), manufacturer of discrete semiconductors and passive components, is expected to see explosive growth in 2010.
The 2010 Zacks Consensus Estimate climbed to 86 cents from 49 cents in the last 90 days. The company only earned 2 cents for all of 2009 so that is earnings growth of 4210%.
Vishay has attractive value stock credentials, with a forward P/E of 12.6. Its price-to-book ratio is just 1.3, well within the value parameters but slightly higher than the industry average of 1.2.
Vishay is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
