Big Tech That's Ripe for the Picking

 | May 20, 2013 | 2:00 PM EDT  | Comments
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Five of the 10 biggest U.S. technology stocks look like buys to me now. Here's a quick rundown of my judgments on all 10, listed in order of market value.

Apple (AAPL, $407 billion) -- Buy. I didn't like Apple at $700 a share, but $434 is another story. CEO Tim Cook is not Steve Jobs, but who is? Apple is startlingly profitable. It has $39 billion in cash or near-cash. Further, customers are still lining up for its phones and mobile devices. The stock sells for 10x earnings and yields 2.8% in dividends.

Google (GOOG, $301 billion) -- Avoid. The monarch of Internet search went public in 2004, and the stock has returned 968% since then. But trees don't grow to the sky, and neither will Google. It sells for 26x earnings -- a little too much, considering that growth and profitability are now moderating.

Microsoft (MSFT, $291 billion) -- Buy. Microsoft is a mature company now, and its heady growth days over. But it is still highly profitable, with a return on equity near 23% last year. Also, the stock sells for a down-to-earth multiple of 13x earnings. I own it for a few clients.

IBM (IBM, $231 billion) -- Avoid. The debt load of $33 billion, or 175% of equity, concerns me. Yes, IBM is probably good for it, much like the federal government. But, as with the federal government, a large debt load narrows an entity's flexibility and strategic choices.

Oracle (ORCL, $165 billion) -- Buy. The leading database company has increased its profit every year for the past decade, even during the recent hideous recession. With a five-year profit-growth rate of about 17% and a price-to-earnings ratio of 16x, Oracle meets the old rule of thumb that a stock should be bought if the growth rate exceeds the P/E.

Cisco (CSCO, $129 billion) -- Buy. My latest column, on May 17, was a recommendation of Cisco. Analysts expect earnings to grow 24% in the current fiscal year. That's not bad for a stock selling at 15x earnings.

Intel (INTC, $119 billion) -- Buy. The knock on Intel is that it dominates the manufacture of chips for personal computers, but struggles in the mobile-device arena. Yet Intel boasted a 21% return on equity last year, so it's hardly struggling. The stock sells for 12x earnings and offers an above-average dividend.

Qualcomm (QCOM, $115 billion) -- Neutral. I love the debt-free balance sheet and admire the company's innovations in mobile communications. However, the shares seem fairly priced to me at the current 18x earnings.

Facebook (FB, $63 billion) – Sell. Facebook has come down from its initial offering price of $38 a share, but it remains ridiculously overvalued, in my opinion, at $26. The price amounts to 1300x earnings and 10x revenue.

EMC (EMC, $51 billion) -- Neutral. EMC is a worldwide power in data storage, and it has a strong balance sheet, but I don't see why the multiple should rise beyond the current 19x earnings. I expect it to perform in line with the market.

John Dorfman is chairman of Thunderstorm Capital LLC, a money management firm in Boston. He can be reached at jdorfman@thunderstormcapital.com.

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