Investors: Are We Blinded By Share Price?

Submitted by Morgan Smith as part of our contributors program.

Over the past several years, the actual product and service offerings of some of the bigger tech stocks have sometimes been overlooked by investors in lieu of their share price. One reason for this is because share prices have tended to bounce around a great deal, forcing share holders to focus more on the overall market and company news rather than on how a company’s offerings can save their users time and money.

In this article, I will discuss why owning large cap shares can be a great way for investors to capitalize on continued company growth, as well as potential steady dividend income, over both the short and long-term.

Microsoft: Is There Still Opportunity for Growth?

When considering large technology companies, Microsoft (MSFT) typically comes to mind. This giant has a market cap of just under $250 billion, which makes it one of the largest tech companies worldwide.

Coupled with incoming free cash flow of nearly $20 billion annually, Microsoft is likely to continue raising its dividend on a regular basis. Currently, the company offers its investors a dividend yield of just over 3%.

Just when consumers and investors start to feel that Microsoft may be resting on its laurels in a comfortably large position, though, the firm is in all likelihood poised for a nice increase in sales from its much-hailed release of Windows 8, and making the company’s shares very attractive in terms of both income and growth.

Because Microsoft anticipates additional future growth in the world of tablet computing, Windows 8 could essentially help its users to coordinate numerous devices that will all be compatible, giving them an extra dose of both compatibility and convenience.

While Microsoft’s P/E ratio currently stands at just under 15, and with earnings per share at 2.00, the company’s share price is expected to rise by more than 21% over the next 12 months – giving investors plenty of reason to feel that Microsoft will continue to provide both income and growth.

Google is Still Setting Record Highs – With Even More Room to Grow

Google (GOOG) is yet another of the mammoth tech companies that has been providing its investors with record share price growth of late. Shares surged over 30% just between July and late September 2012.

Some of the reasons for this likely include the fact that consumers are now realizing that Android based phones are (finally) as good as Apple’s iPhones – and that the new tablet recently put out by Google has received great reviews. In addition, Android – which is actually Google’s operating system – is continuing to gain market share at nearly all of its competitors’ expense.

Based on Google’s new array of products, along with the company’s continued tech offerings that are used by millions of users worldwide, Google is expected to generate in the neighborhood of $12 billion in just free cash flow alone in 2012. To put that into perspective, this is more than twice the amount of Facebook’s entire revenue.

One of the other true drivers that is responsible for Google’s most recent upward surge in share price is the ongoing strength of the company’s financial performance. Google has continued to grow its core business of internet search engine at a rapid pace. And in many ways, Larry Page, one of the company’s founders and CEO, as worked to re-energize the company on its primary business front, as well as by expanding out into other product markets. Some even feel that money is now moving out of Apple and into Google – especially in the smartphone and related app arena – helping to fuel Google’s growth even more.

The Bottom Line

In conjunction with the vast number of individuals starting their own companies today – and with so many businesses making use of internet marketing and sales capabilities – it is clear that there is still lots of room for growth in the technology sector, allowing investors to jump, or stay, on the bandwagon with leaders in the field, as well as tech firms that are up and coming.

One example of a small company that can make life much easier for users in terms of obtaining sales leads for their businesses is Vendisys. Several years ago, while email was emerging as a new mode of commercial communications, one of the founding members of Vendisys has a vision to leverage email and simulate best practices prospecting methods in order to generate meetings for the field in a much more efficient and effective manner. In turn, this type of marketing has led to the ability of companies – both small and large – to gain instant exposure across high profiled accounts, while at the same time shrinking the sales cycle by over 40% in some instances. In addition, since email marketing is much more cost effective – even eliminating a great deal of risk in the cost-per-lead pricing model – it can essentially raise the user company’s new business by over 100%.

Yet, while some of these smaller firms can be great buys as well, sometimes sticking with the tried and true giants that are surging forward can make more sense. In Google’s case, the company is finding success by not only branching out in other product areas, but by also sticking with its core business – possibly in an “if it ain’t broke, don’t fix it” type of way.

In addition, with Microsoft in the process of building an overall system of compatibility that essentially mirrors its Windows/OEM system in the PC market, I expect the company’s sales to continue rising – in particular due to the tablet and smartphone market – thus providing investors with a steady stream of regular dividends along with a nice amount of solid growth.