Unloved stocks in neglected sectors means potential bargains. One sector that seems to be losing steam is technology. A recent string of earnings reports in the tech sector has left these three companies looking attractively valued.
Surface problems
Still, there is hope. Declining PC sales are troubling, but the company still managed to increase revenues by roughly 10%– especially where it matters most. Arguably the most important division of the company, the Microsoft Business Division (which includes Office sales), saw a 14% gain in revenues. Office is one of the company’s biggest money makers, and is now at a $1.5 billion annual revenue run rate, according to PC World.
Xbox Live, the gaming and digital media delivery service that charges users a fee to play multiplayer games online, also saw sales jump nearly 20%, which may carry over to the new Xbox One console scheduled to be released later this year.
Microsoft Corporation (NASDAQ:MSFT) is also incredibly strong financially and is one of only a few companies in the entire world with a AAA credit rating:
MSFT LT Debt data by YCharts
The company is also turning into a dividend growth gem, with a low payout ratio and plenty of free cash flow:
MSFT Dividend data by YCharts
With a payout ratio around 34%, Microsoft Corporation (NASDAQ:MSFT) pays out a dividend yielding a tad under 3%, which can provide an investor with a relatively safe source of income. The income won’t cost you an arm and a leg either, with shares trading at a cheap 12 times earnings, and around 10.5 times forward earnings.
“Big Blue” in big trouble?
Another technology stock recently causing concern among many investors is International Business Machines Corp. (NYSE:IBM). Shares of IBM are also trading cheaply in relation to earnings, sporting a P/E ratio of about 14 and a forward P/E ratio of around 11. International Business Machines Corp. (NYSE:IBM), like Microsoft Corporation (NASDAQ:MSFT), also dropped over 10% because of missed earnings– two quarters ago.
International Business Machines Corp. (NYSE:IBM)’s most recent quarter, however, was different. The company beat on earnings, even though revenues came in light.
The balance sheet holds a lot of debt and the company is fairly leveraged:
IBM LT Debt data by YCharts
The high debt-to-equity ratio, however, can also be attributed to International Business Machines Corp. (NYSE:IBM)’s extensive buyback program and global financing arm. The company still manages to generate massive amounts of free cash flow, which gives it more maneuvering room:
IBM Dividend data by YCharts
International Business Machines Corp. (NYSE:IBM) has paid out a dividend every year since 1916, and also has an impeccable record of raising its dividend every year. Shares currently yield only about 1.90%, but with an extremely low payout ratio of 25%, International Business Machines Corp. (NYSE:IBM)’s dividend is one of the safest on the market.
