1. Oracle
Oracle has been on a tear in 2012, up 31% on the year and trading within 8% of the March 2011 all-time high. These gains are being driven by more earnings growth, with full-year 2013 earnings expected to be increase 9% to $2.55 per share. That has shares trading at a discount to its peers and the market. With a forward price-to-earnings (P/E) ratio of just 13, Oracle trades at a discount to its 10-year average P/E of 16 and its peers P/E of 15.
2. Cisco Systems Inc.
Cisco was a big-time high flyer from the 1990s. But now, 15 years later, the company looks more like a solid blue chip in technology with a very respectable dividend yield of nearly 3%. Hardware has been a tough segment for the past few years, with the desktop space becoming largely commoditized. But Cisco’s position in higher-end networking gear protected it from some of the price erosion in desktop hardware. Cisco is another big technology company that looks undervalued, trading with a forward P/E of 11, a nice discount to its peer P/E average of 15. With investors on the hunt for blue chips with yield, Cisco could become a hot destination soon.
3. eBay Inc.
This is looking like a solid turnaround story. Online auction website eBay Inc (NASDAQ:EBAY) saw its margins fall a few years back as it fell out of favor with loyal buyers and sellers. But in response to eroding market share and margins, management implemented new initiatives to become more profitable and boost growth. Those efforts are now paying off. The company continues to see good results in its core business, including its commerce and payments systems divisions. Looking forward, analysts are projecting year-over-year earnings growth of 17% in 2013, calling for full-year earnings of $2.40 per share.
4. Amazon.com
Amazon.com, Inc. (NASDAQ:AMZN) is easily the priciest stock on the list, trading with a forward P/E ratio of 60. But that hasn’t slowed shares down one bit this year, up a market-crushing 44%. Amazon is doing a lot of interesting things right now. It’s chipping away at big-box retailers such as Best Buy Co., Inc. (NYSE:BBY) with their incredible online presence. It’s also attacking Apple Inc. (NASDAQ:AAPL) with its e-reader Kindle. In addition, the company is becoming a major player in the cloud space as a provider of web and cloud services. When you add it all together, Amazon is a top player in a number of major tech segments. Analysts are calling for earnings of $1.80 per share in 2013, which creates a lofty valuation. But if 2013 looks anything like 2012, then this tech mega cap should be in good shape.
Risks to Consider: Technology has seen market-leading gains in the last year. If investor sentiment cools, profit taking could drive outflows from large tech stocks.
Action to Take –> Big technology has never looked stronger. The industry is sitting on record earnings, record margins and record cash. And with investors looking for more stability in a market clouded with uncertainty, big technology looks well positioned for more gains in 2013. The four companies mentioned here are particularly set for a strong year ahead.
