Two Tech Stocks to Buy After Declines

 | Jul 29, 2013 | 11:00 AM EDT  | Comments
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Stock quotes in this article:

adsk

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ebay

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adbe

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dfs

As we begin the last trading week of July, I continue to believe the market is overdue for a decent pull back. I am still finding some bargains, however, albeit much less than earlier in the year.

I want to talk about two tech stocks that have had recent declines of five to 10 percent, and are now offering attractive entry points for long-term investors.

Autodesk (ADSK) is a leading provider of software for computer-aided design (CAD) and product lifecycle management. The stock sells for $36.50 a share after falling from over $40 during the last few months. The decline was triggered by an earnings miss last quarter where revenues declined 3% year on year. This is a bit deceiving, however, as deferred revenue actually increased over 15% and operating cash flow rose substantially year on year..

The stock has a reasonable value of 16x next fiscal year's projected earnings, which looks better when one factors in that 20% of the company's market capitalization is represented by net cash. The company is well-positioned for future growth. Building Information Modeling is increasingly being incorporated into new construction. Spending for BIM software is also expected to triple to $5 billion by 2020. Autodesk's products aimed at this segment showed revenue growth of better than 25% in FY2013.

In addition, around a third of the company's revenue comes from Europe, which has been in doldrums for years. It appears, however, that the continent is starting to bottom. Architectural billings, a leading indicator for future new construction, have picked up over the last few months.

The company is also increasing its mobile, subscription and 3D product offerings. On a price to sales basis, the shares look cheap compared to fellow software maker Adobe Systems (ADBE).

eBay Inc. (EBAY) owns one of the world's most popular e-commerce destinations, as well as PayPal and other online interests. The shares have fallen almost 10% since a minor downward revision in forward guidance during its last earnings report. The stock is also selling at just over 16x next year's expected earnings with some 10% of its market capitalization in net cash.

A growth investor would want to own this equity because of its payments business, which is driven by PayPal. Revenue in this segment is growing at better than 20% a year and now makes up over 40% of overall sales. This growth should continue to benefit by the exponential increases in mobile payments.

The company recently formed an alliance with Discover Financial (DFS) that will allow it to be used as form of payment in 2 million stores by the end of this year. PayPal also has substantial room to grow in emerging markets like China and India. EBAY's overall revenues are expected grow at a 15% to 16% clip in FY2013 & FY2014. Insiders hold over 10% of the stock.

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