Zacks Investment Ideas Feature Highlights: Cisco, Intel, Microsoft and Dell

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Feb 13, 2012, 09:30 ET

CHICAGO, Feb. 13, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Cisco (Nasdaq: CSCO),Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT) and Dell (Nasdaq: DELL).

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The Old Tech Titans Are Value Stocks

Last year, technology investors obsessed over LinkedIn and Groupon as the two social media companies went public in spectacular fashion. In 2012, Facebook is the next juggernaut to go IPO. Already investors are chomping at the bit to get in on it. Will Twitter be next?

I don't know about you, but the excitement is beginning to remind me of 1999 all over again. And I'm not talking about companies like Fogdog or Pets.com going public without any earnings. The IPO scene is reminding me of the optimism from that time when companies were being formed in South of Market loft apartments with just a few computers and a dream.

Technology stocks are hot again. They're glamorous. Everyone is talking about them. Employees in Silicon Valley are getting rich again.

Must Own Stocks

Back in 1999, there were several technology stocks that were, essentially, "must own" stocks. They were called the "tech titans" and from the beginning of the decade to the end, they gave investors spectacular returns.

Many investors considered them almost sure things -- until the technology bubble burst and then they weren't so "sure" anymore.

It's been a long road back.

Now, these companies are no longer the new kids on the block. In some cases they even pay, gasp, a dividend!

Technology Stocks = Value Stocks???

But while LinkedIn is trading with a nose bleed P/E of 266x and Groupon isn't much better with a forward P/E of 80, the old tech titans have suddenly become a real deal.

Over a decade after the dot-com bubble burst, they are now value stocks.

It might be time for technology investors to take another look at the original group of technology golden boys. They're not dead yet.

Four Tech Titans With Plenty of Value

By 1999, every mutual fund manager owned at least one of these stocks, and many probably owned all four of them.

You can see why from their 20 year returns, of which most of it was made before the bust in 2000-2001.

1. Cisco: 3317% return
2. Intel: 1476% return
3. Microsoft: 1214% return
4. Dell: 7993% return

S&P 500: 228% return over 20 years

The decade before the dot-com bust were the glory years however. The returns since the bust have not been nearly as attractive.

All of them have underperformed the S&P 500 over the last 10 years with 2 of them finishing in the red during that period.

1. Cisco: 21% return
2. Intel: -2% return
3. Microsoft: 13% return
4. Dell: - 31% return

S&P 500: 23% return over 10 years

Low P/Es

But now, the stocks are unloved enough that the valuations are very attractive. All of them are trading with forward P/Es under 15, which is the cut-off I usually use for value stocks.

1. Cisco: Forward P/E of 13
2. Intel: Forward P/E of 11
3. Microsoft: Forward P/E of 11.4
4. Dell: Forward P/E of 8.9

S&P 500: Forward P/E of 13

Solid Fundamentals

1. Cisco (Nasdaq: CSCO) is a Zacks #2 Rank (Buy). Fiscal 2012 earnings are expected to rise 12.5%. The company recently raised its dividend which is now yielding 1.2%.

2. Intel (Nasdaq: INTC) is a Zacks #3 Rank (Hold). It has a 1-year return on equity (ROE) of 28%, well above the S&P 500 average of just 13.8%. It also pays a juicy dividend, yielding 3.2%.

3. Microsoft (Nasdaq: MSFT) is a Zacks #3 Rank (Hold). The company's 1-year return on equity (ROE) is a stellar 39.4%. This crushes the S&P 500 average. Shareholders get a 2.6% yield in the dividend.

4. Dell (Nasdaq: DELL) is a Zacks #1 Rank (Strong Buy). Analysts expect 2012 earnings to jump 38%. The company also has a 1-year return on equity (ROE) of 49%.

Don't Forget About Value

It's easy to get caught up in the next "hot" technology stock. Many investors did just that in 1999 and 2000. But you shouldn't forget about valuation. You can still get exposure to the technology sector at an attractive price.

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