PC and laptop related stocks were crushed on Thursday as data shows that global shipments continue to slide at an accelerated rate. Since the iPad’s release, global PC growth has gone from 20% to a fall of 14% this last quarter. As a result, those companies with any connection to PCs and laptops are seeing weakness, but I am looking at four stocks with different connections to the space to determine if any are a buy.
Major Operating System Developer Falls
Microsoft Corporation (NASDAQ:MSFT) fell by 5% on Thursday following the news of global PC shipments. The company is more known for its operating system Windows and was expected to provide a boost to the space with the launch of Windows 8.
From an investment perspective, expectations are low and the company’s operating system is being used in various tablets and smartphones. However, the Windows 8 has not gained a significant amount of momentum. This is a company trading at 3.5 times sales and 15.8 times earnings. Therefore, it is consistent with the value of the S&P 500 but is perhaps growing even slower. With a $240 billion market cap, it does not seem as though Microsoft Corporation (NASDAQ:MSFT) is a technology company for the next decade. I would go in a different direction.
A Cheap PC Maker Priced for Destruction
Hewlett-Packard Company (NYSE:HPQ) makes computers, printers, and other technology devices. Over the last five years the stock has lost 55% of its value, feeling the full wrath of the tablet movement. And on Thursday it lost another 6.5% of its value as investors fear another double-digit revenue percentage drop could be in store for the quarter ahead.
From a valuation point of view Hewlett-Packard Company (NYSE:HPQ) is cheap. The stock trades at just 0.37 times sales (much better than Microsoft Corporation (NASDAQ:MSFT)’s 3.5 times sales) and has a forward P/E ratio of 5.8! In a sense, Hewlett-Packard Company (NYSE:HPQ) is priced for disaster, yet the company has operating cash flow of almost $12 billion and has chosen to focus on cash flow and improving efficiency. Therefore, with an annual dividend yield of 2.4%, I say that Hewlett-Packard Company (NYSE:HPQ) is a buy.
A Diversified Shareholder-Friendly Company in the Storage Business
Seagate Technology PLC (NASDAQ:STX) is a provider of electronic data storage products, also called hard disk drives (HDDs). Seagate Technology PLC (NASDAQ:STX) is one of two companies that virtually control this space, and on Thursday it saw a near 4% loss on the news.
Seagate Technology PLC (NASDAQ:STX) had been trading at all-time highs, yet still trades at just 4.7 times earnings and 0.83 times sales. As an investment, Seagate does look a bit more expensive than HP, but Seagate Technology PLC (NASDAQ:STX) is probably the most shareholder-friendly company in the market. Last year, it returned more than 100% of its free cash flow back to shareholders in buybacks and dividends; with a yield of 4.3%. Granted the company is highly exposed to the PC and laptop market, it also operates in the home entertainment, DVR, game console, and even the cloud. I think Seagate Technology PLC (NASDAQ:STX) is a good investment in the space, but is volatile nonetheless.
A Zero-Growth Chip Leader Sees Little Upside
Finally, computer chip maker Intel Corporation (NASDAQ:INTC) saw a 2.7% loss due to its large exposure to the PC and laptop space. Much like Seagate Technology PLC (NASDAQ:STX), Intel’s reach is broad — the company operates in data centers, tablets, smartphones, automobiles, etc. Yet the chip making approach remains the same.
The stock has had a horrible year, losing 22% of its value while the Dow Jones had gained 16%. It is a zero-growth business, expecting no sales or earnings growth this year, but does trade at a 50% discount to the market. As a result, Intel might make a good value investment. The company pays a yield of 4.3% annually, and much like the rest of the space, is priced for destruction. Therefore, it might be a good investment to explore.
Conclusion
Each of the four companies above operates with different businesses but in the same industry. All expand beyond PCs and laptops, but have a very large presence in the space. As a result, all are cheap, with Seagate and Hewlett-Packard Company (NYSE:HPQ) being the cheapest from a valuation stance. However, this is a space changing rapidly, and investors should note this fact as part of their research, and should always compare various companies in the same industry to capitalize on true value.
Brian Nichols is long Seagate. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft.
