Adobe Systems Incorporated (NASDAQ:ADBE) focuses on design software of all kinds, the kinds of software used by graphic artists and web designers. Fundamentally, its biggest problem has been Apple, which has been pushing Adobe Flash away for a few years now, and has essentially made it redundant.
The company has sought to replace its growth in Flash with the Creative Cloud, a $50/year subscription to its leading design software titles, sold as a service. The result of Flash’s loss and Creative Cloud’s gains have been a wash, with revenue flat at about $1 billion/quarter, trending slightly downward, and profits only starting to recover from a lower base, to $76.55 million in the last quarter.
Despite the fact that Apple’s numbers actually look more attractive, Adobe Systems Incorporated (NASDAQ:ADBE) sports a high P/E of nearly 41 even without a dividend.
Another alternative is Microsoft Corporation (NASDAQ:MSFT), Apple’s long-time rival, which is up only 9.6% over the last year but is up 26% so far in 2013. The company’s 23 cent/share dividend yields 2.73%, almost as much as Apple, and the financials have taken a jump up, with quarterly sales now in the $20.5-21 billion/quarter range, and margins of nearly 30% delivering over $6 billion to the bottom line in the last quarter.
The Microsoft Corporation (NASDAQ:MSFT)-for-Apple trade has been working well this year, having been very one-sided toward Apple over the previous three years. Nevertheless, investors are now willing to pay a PE of 17.6 to be in Microsoft Corporation (NASDAQ:MSFT), against about 10 for Apple.
A Foolish Take
The price investors pay for tech stocks is based on momentum, and assumptions about the future that are often false.
By any conventional measure Adobe and Microsoft are woefully overpriced in comparison to Apple, but those who’ve believed that have been hit hard throughout 2013.
It may be time for investors to see tech stocks as investments, rather than speculations. Putting money into Apple today means having a steady dividend, and a nice floor under the price driven by an active stock buyback program. It’s a conservative investment in a field where conservatism is out of fashion.
This may not make your rich, but it will keep you safe.
Dana Blankenhorn owns shares of Apple. The Motley Fool recommends Adobe Systems and Apple. The Motley Fool owns shares of Apple and Microsoft. Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Apple Becomes the Conservative Choice originally appeared on Fool.com is written by Dana Blankenhorn.
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