We discussed in Thursday's column some of the recent carnage in high yield sectors like energy Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs).
A solid majority of the stocks in these sectors have taken 10% to 25% hits over the past three months. The recent fast rise in interest rates has caused investors to worry about these sectors' debt and financing costs and has led to significant declines throughout this part of the market.
As I stated Thursday, this pullback is a buying opportunity as I do not believe economic or job growth is strong enough to withstand interest rates much higher than current levels.
Today, we will take the opposite tack. We will look at a couple of cheap, cash-rich technology plays that seem attractive at these price levels. With no net debt they should not feel the impact of rising rates should my original thesis turn out to be incorrect. Both are also benefitting from the growth of mobile devices.
Corning (GLW) is a maker of high-technology fiber optics for the global telecom industry and high-performance glass components for the personal computer and television manufacturing industries. The stock is cheap, selling at right at book value, 7x operating cash flow and approximately 11x trailing earnings. It has net cash on the books of about $2 billion, which represents almost 10% of the stock's current market capitalization. Corning closed Thursday at $14.62 a share.
The company is using its cash flow and strong balance sheet to reward shareholders. The stock yields 2.7% and Corning has doubled its dividend payout over the past two years. The company has a robust stock repurchase program and bought over $240 million of stock in the recently completed quarter.
The company's specialty glass segment, led by Gorilla Glass, has rapidly become a significant growth business with over $1 billion of annual sales. The large increase in mobile devices should continue to power growth in this segment and analysts believe the company will produce 5% to 6% sales increases in the upcoming fiscal year.
Qualcomm (QCOM) is an arms supplier in the advanced wireless broadband technology marketplace and supplies Apple (AAPL) along with its competitors, including Samsung, in the smartphone space. As the market has been focused on Apple's 30% rise over the last eight weeks, QCOM has quietly staged a rally of its own. QCOM rose to $67 from $60 a share over the past two months. QCOM closed Thursday at $67.13.
The stock was also mentioned in last week's Barron's cover story as one of the few stocks whose earnings have grown faster than its stock price recently.
This is another technology equity that has approximately 10% of its market capitalization represented by the net cash on its balance sheet. After posting revenue gains near 30% this fiscal year, analysts expect sales increases in the low teens in the upcoming fiscal year.
Given the company's growth, the stock is not expensive at below 14x forward earnings. The shares also yield over two percent and the company has more than doubled its dividend payout over the past six years.