Even after the recent pullback, major market indexes are still trading near historical highs, and some stocks are starting to look a bit pricey. However, investors willing to do their homework and search below the surface can always find attractively valued companies for their portfolios. These three tech leaders offer compelling valuations and active capital distributions.
Apple has been facing increased competition from Samsung and other low cost manufacturers over the last quarters, and this has caused a slowdown in the company´s growth rates. But the Cupertino giant is expected to launch its new iPhone on September 10, and it may also announce a new lower priced model to gain competitiveness in emerging markets.
New product categories like a revamped Apple TV or a smart watch have long been rumored, CFO Peter Oppenheimer said in the last conference call that Apple is "on track to have a very busy fall," and that the company will reveal more in October, when it reports results for its fiscal fourth quarter. It's not only words, research and development expenditures increased by 34.5% to $1.18 billion in the last quarter, so the company seems to be stepping up its efforts to bring new products to the market.
Apple accelerated its buyback program in the last quarter; the company repurchased an impressive $16 billion in buybacks and the stock yields 2.4% in dividends. At a P/E ratio of 12.5, earnings deceleration is already priced into Apple, and the stock is offering plenty of upside if new product launches reignite growth and prove to investors that the company can still bring successful and innovative products to the market.
Trust and reliability are key competitive advantages in the IT industry, and IBM stands above the competition due to its product depth, global reach, and long term trajectory. IBM is the second most valuable brand in the world according to Interbrand, and it's in the fifth position in Fortune's ranking of the most respected companies in the world.
IBM has been around for more than 100 years and counts each of the Fortune 2000 companies as clients. The company has operations in more than 170 counties, and it offers a breath of products and services unmatched by the competition. So when a global corporation wants to make sure that its IT solution is not only reliable, but can also be expanded both in terms of services and global integration, IBM is the most likely way to go.
IBM will need to adapt to the cloud computing parade and the rise of smaller, more dynamic, competitors. Size can be a limitation when it comes to growth, and so is lackluster corporate spending in the current economic environment. But IBM has successfully gone through challenging conditions in the past, and there is no reason to believe it can´t continue thriving for years to come.
Since 2000, IBM has returned over $150 billion to shareholders in the form of dividends and share repurchases. The current dividend yield is 2% and the company has consecutively increased dividend distributions in each of the last 18 years, including a 12% rise for 2013. Slow and steady wins the race, and IBM is not only slow and steady, but also quite cheap.
Shares of Cisco plummeted by more than 7% after the company released its last earnings report on August 14. The numbers for the quarter weren't really that bad, but forward guidance was quite disappointing and the company announced that it will be laying off 4,000 employees.
Weak guidance and a shrinking workforce is not precisely good news, but the market tends to overreact to negative announcements, and this seems to be the case with Cisco. The connectivity powerhouse is trading at a P/E ratio below 13 and yielding 2.8% in dividends, which looks quite compelling for a fundamentally strong company.
Cisco is facing increased competition from low cost Asian players like Huawei and ZTE, but the company still holds the quality leader position in networks and connectivity on a global scale. Besides, the company is restructuring its business lines to focus on the more promising areas of the business, segments like Service Provider Video, Wireless and Data Centers are delivering impressive performance and should propel Cisco into its next growth phase as a more focused and profitable corporation.
The market has experienced quite a run over the last years; however, it's not about the general averages but the individual companies that make those indexes. Digging below the surface can many times lead to compelling investment opportunities, and companies like Apple, IBM, and Cisco are offering attractive valuation levels, generous capital distributions and considerable upside potential for investors.