Garmin Ltd. (GRMN), Verisign, Inc. (VRSN): Two Tech Stocks to Buy and One to Avoid as Target Prices Are Lowered

Investors might like Verisign, Inc. (NASDAQ:VRSN)’s cash balance of $1.56 billion, but remember that only $240 million is domestically held.

Dividends Still Matter

In the GPS space, analysts lowered the target price for Garmin Ltd. (NASDAQ:GRMN) by 9% to $38.75. Gross margins rose in its last quarter, but operating margins declined to 15%. The company experienced a drop in the automotive/mobile, outdoor, and marine sales channels. Sales rose in the aviation and fitness segments.

Investors are ignoring the weak sales and light margin figures, betting that Garmin will continue to compete effectively against smartphones. Garmin Ltd. (NASDAQ:GRMN) is not lowering its expenditures for research and development. Operating expenses rose by $8 million, or 2.1% as a percent of sales, due to R&D. The company stated that the low margins in the quarter to be a seasonal occurrence, and expects it to improve in the next quarters.

Free cash flow dropped substantially compared to last year. Garmin Ltd. (NASDAQ:GRMN) reported a substantial FCF decline:

Mar 30, 2013 Mar 31, 2012
Free Cash Flow $ 47,747 $ 116,470
(in thousands)

Source: Garmin Press Release

It pays for Garmin Ltd. (NASDAQ:GRMN) shareholders to be patient. Garmin pays a dividend of $1.80, which yields 5.04%.

Conclusion

The continued froth in stock markets is supporting nearly all stocks, even companies that missed earnings expectations. The lowered target price is justified, and investors should not ignore the rising risks in the stock market. Garmin Ltd. (NASDAQ:GRMN) is still an attractive income investment whose growth depends on shifting its focus towards fitness and marine devices that have GPS. Verisign lacks any catalyst for further upside, but the company has a strong business and little competition to worry about. The rebound in JDS Uniphase Corp (NASDAQ:JDSU) may not hold: the sector is facing capex cuts from its customers, and 2013 will be a tough year.

The article 2 Tech Stocks to Buy and 1 to Avoid as Target Prices Are Lowered originally appeared on Fool.com and is written by Chris Lau.

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