One of the relatively new names, compared to the trading history of the other tech giants, is SAP AG (NYSE:SAP), which started trading on the NYSE in 1998. SAP is one of the better growth stories of the past and the future. Of our five tech giants, SAP is up the most by far over the past ten years at 280% – versus the next closest stock, Oracle at only 185%. The enterprise application company expects future growth to be driven by its in-memory database technology. Other key products for SAP include mobile apps for real time database analysis and cloud computing. First half fiscal year 2013 results showed software sales up 12% – beating consensus by four percentage points, and orders were up 36% from the first half last year. Billionaire Ken Fisher – founder of Fisher Asset Management and Forbes columnist – was the top fund owner of both SAP and Oracle during 3Q (check out Ken Fisher’s newest picks).
From a valuation standpoint, it appears there is quite a range for our five ‘unsexy’ tech stocks, with some showing solid growth potential and others exhibiting value-opportunity characteristics. Outlined below are some key metrics for our five tech stocks:
| Company | Price-to-Earnings | Price-to-Sales | Long-Term Growth Rate (expected) | Dividend Yield |
| SAP | 20x | 4.8x | 12% | 1.2% |
| Oracle | 15x | 4.3x | 12% | 0.8% |
| IBM | 14x | 2.1x | 10% | 1.8% |
| Intel | 9x | 1.9x | 12% | 4.5% |
| Cisco | 13x | 2.2x | 8% | 2.9% |
As expected, SAP trades at a premium valuation given its outsized growth potential – some of which we believe is not fully accounted for in their long-term growth rate. We believe investors can still find value in SAP, more so than is currently being offered by Oracle. On the low end of the valuation spectrum is Intel, which also has one of the more robust growth rates – making it a ‘growth at a reasonable price’ play, but we remain concerned it could be a value trap should PC demand continue its slide. Intel is also the big underperformer of our five tech stocks; over the past ten years Intel is relatively flat in terms of returns.
Although it appears to be a middle-of-the-road company, where it trades in the mid-range of its peers on a valuation, growth and dividend basis, we tend to make the bet with Warren Buffett that IBM has an industry-leading position and the wherewithal to boost its dividend in the near future. Cisco trades near the bottom of our tech stocks on a valuation basis, but for good reason given its less-than-stellar expected growth rate. If Cisco could make a strategic acquisition, particularly in the cloud computing sector, we believe the tech company could rapidly move up the list. Three of our five ‘unsexy’ tech stocks are on our list of top ten tech stocks loved by hedge funds.
