Our theme of Value Tech Stocks is up by about 10% year-to-date, compared to the Nasdaq-100 which is up by just about 5% over the same period. The theme includes stocks from the tech sector that have a market cap of over $10 billion, trading at a trailing price to earnings multiple of under 20x. With Covid-19 cases well off their highs in the U.S. and about a third of the U.S. population now fully vaccinated, investors are moving away from high growth stocks and Covid-19 winners toward cyclical and value stocks. Moreover, Treasury Secretary Janet Yellen says that interest rates may have to rise somewhat to keep the economy from overheating and this is another factor that could help value names. We think that value technology stocks, in particular, look attractive at this juncture, considering that they also play on the broader theme of digitization and higher corporate IT budgets post the pandemic. Below is a bit more about how the stocks in our theme have been faring.
Intel stock (NASDAQ:INTC) has been one of the strongest performers within our theme, rising by about 17% year-to-date, driven by strong semiconductor demand, large new investment plans in the foundry space, and some changes at the top management level. Cisco stock (NASDAQ:CSCO) is up by about 14% year-to-date, as enterprises are likely to increase spending on network infrastructure post the pandemic, with overall corporate IT budgets also likely to trend higher. eBay stock (NASDAQ: EBAY) is also up 14% year-to-date, as the company sees some tailwinds from the shift to e-commerce through Covid-19. However, the stock has come under pressure lately due to lighter than expected guidance for the current quarter. Electronic Arts (NASDAQ:EA) has been the worst performer within our theme, with its stock declining by -3.5% year-to-date.
[3/8/21] Will Rising Bond Yields Help Value Tech Stocks?
Our theme of Value Tech Stocks includes technology names with a market cap of over $10 billion that are trading at a trailing P/E of under 20x. Although the theme has underperformed since 2017, rising by just about 31%, compared to the Nasdaq-100, which has more than doubled over the period, it has fared better this year, rising 1.5% year-to-date compared to the Nasdaq-100 which is down by over 4%. There’s a good chance these stocks could continue to outperform in 2021, as rising bond yields take some sheen off higher growth names with investors potentially rotating into value stocks. For perspective, the 10-year Treasury yield has risen from around 1.1% to 1.6% in just about a month. Now, value tech stocks might hit the sweet spot in this market as they trade at reasonable valuations while playing on the broader Covid-19 theme of greater digitization and higher corporate IT spends. Moreover, most of the names in our theme are mature tech companies that are incumbents in their respective segments. Within our theme, Intel stock (NASDAQ:INTC) has been the strongest performer, rising by about 20% year-to-date driven by strong semiconductor demand and some top management changes. On the other side, Marvell (NASDAQ: MRVL) a company that develops and produces semiconductors and related technology has underperformed on account of mixed quarterly earnings, with its stock declining by about 13% year-to-date.
[2/22/2021] Will Tech’s Old Guard Beat The Market In 2021?
Our theme of Value Tech Stocks has underperformed the market in recent years, rising by just about 29% since the end of 2017, compared to the S&P 500 which is up by about 46% over the same period. The theme includes tech companies that offer essential technology products and services, have a market capitalization of over $10 billion, and trade at a trailing price to earnings multiple of under 20x. In comparison, the broader NASDAQ index trades at a much higher 40x trailing P/E. However, we believe that the stocks in our theme have lower price risk in the current market environment, and at the same time could offer reasonable upside from increasing digitization and higher corporate IT spends following Covid-19. Below is a bit more about the stocks in the theme and some trends that could help to drive them higher in the near-term.
Intel stock (NASDAQ:INTC) stock has been the best performer within our theme this year so far, rising by about 26% since early January, driven by stronger than expected Q4 results and guidance for the current quarter, and also due to the appointment of new CEO Pat Gelsinger. Moreover, demand for semiconductors has been strong across the board, with many end-markets facing chip shortages. Intel, with its sizable production capacity, should stand to gain.
Cisco stock (NASDAQ:CSCO) is up by about 2% year-to-date. The company has been witnessing weaker demand for its networking gear as the Covid-19 pandemic caused customers to postpone deployments and also due to stronger competition. However, IT spending is expected to rebound sharply as the pandemic wanes and Cisco should be well poised to benefit. Additionally, Cisco’s pivot to a more software-centric model should also help the stock.
Oracle stock (NYSE:ORCL) stock is down by about -5.5% year-to-date. Although revenues have faced pressure in recent years as the hardware and services segments have taken a hit, the company’s cloud operations, particularly its public cloud business, could unlock a lot of value. During its most recent quarter, the company said that revenue from its Gen 2 cloud was up over 100% year-over-year. As the public cloud business continues to gain scale and the company provides more transparency, investors could potentially re-rate the stock higher.
[Updated 1/20/2021] Value Tech Stocks
Our indicative theme of Value Tech Stocks includes relatively mature businesses that offer essential technology products and services and trade at reasonable valuations. Specifically, we have picked tech companies that are trading at a trailing price to earnings multiple of under 20x and have a market capitalization of over $10 billion. Although these stocks haven’t really rallied since our last update in November, with the Covid-19 vaccines roll out gathering steam globally, it’s likely only a matter of time before broader economic growth returns, helping value stocks, including reasonably priced technology names. Here’s a quick rundown of some value stocks in our Value tech stocks theme.
Intel (INTC) has been out of favor with investors due to increasing preference for lower-cost ARM-based chipsets and a delay in its rollout of its next-generation 7nm CPUs. However, the stock is up by about 16% year-to-date, as investors have a favorable view of Intel’s recently announced top management shakeup, which will see VMware CEO and former Intel CTO Pat Gelsinger succeed current Intel CEO, Bob Swan.
Cisco (CSCO) stock has also been listless as corporations paired back on spending on networking gear through the Covid-19 recession. However, IT spending is likely to rebound sharply over 2021 and Cisco being the go-to company for enterprise networking solutions should benefit. The company’s gradual pivoting to a more software-driven model should also help the stock. The stock is up by about 1.5% this year.
Oracle (ORCL) is a provider of database, cloud, and enterprise software products. The stock has seen steady growth over the last several years, driven by expanding earnings and its share repurchase program. The company has been expanding sales of its cloud-based applications, such as Fusion and enterprise resourcing planning services, helping to offset the slow growth of its legacy offerings. The stock is down by about -4.5% this year.
NetApp (NTAP) is a company that sells hardware and software focused on data management. While the company has seen a mixed performance in recent quarters, due to weak demand from large customers and its significant reliance on hardware sales, its increasing focus on the cloud computing market should help the stock. The stock is down 2.5% year to date.
[ Updated 11/24/2020] Is it A Good Time To Double Down On Value Tech Stocks?
Value Tech Stocks such as Oracle (NYSE:ORCL) and Intel (NASDAQ:INTC) have had a mixed year. There was good reason for this, as the deep Covid-19 recession, abundant liquidity following interest rate cuts, and the growing at-home economy drove investors to hyper-growth software as service stocks, high-risk, high reward sectors such as electric vehicles, and fast-growing platform players such as Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN).
However, with the availability of multiple highly effective Covid-19 vaccines (Pfizer, Moderna, and AstraZeneca have published strong efficacy data on their vaccines) looking likely in 2021, things are likely to gradually start returning to normal. Moreover, the Fed could also eventually revisit its stance on ultra-low interest rates as the economy shows signs of picking up. As this plays out investors could re-visit lower growth stocks that represent compelling value. While positive news about the vaccine earlier this month has already buoyed cyclical sectors such as energy, industrials, and financials we think it’s likely that funds will flow to value tech stocks in the near-to-medium term.
Our indicative theme of Value Tech Stocks includes relatively mature businesses that offer essential technology products and services and trade at reasonable valuations. Specifically, we have picked companies that are trading at a trailing price to earnings multiple of under 18x and have a market capitalization of over $10 billion. Key names in the theme include Oracle (ORCL) , VMware Inc (VMW), Seagate Technology (STX), Cisco (CSCO), and Intel (INTC).
[Updated 11/10/2020] Can Intel Stock Recover?
Intel (NASDAQ:INTC) stock has had a rough year, driven by delays in the company’s transition to the next generation 7-nano meter technology for its chips, some recent headwinds at its cloud and data center business, and strong competition from rival AMD in the PC and server CPU space. The stock is down by about 25% this year, significantly underperforming the NASDAQ which is up by over 28%. That said, there have been some positive developments that could help the company get back on track. In October, Intel announced a deal to sell its NAND business to SK Hynix for about $9 billion in a move that could allow the company to focus on its core CPU business, while bolstering its liquidity. Intel also appears to be more flexible with its manufacturing, recently noting that it could produce its next-gen chips in-house, or outsource them, or even use a hybrid model that leverages both internal and external fabs. Intel stock looks like good value at the moment, trading at just about 9.5x projected 2020 earnings. While growth could remain tepid in the near-term, Intel’s scale, its vast marketing and distribution footprint, and its large base of corporate customers, who rely on Intel processors and are likely averse to switching, should help the company in the medium to long-term.
See our indicative theme on Value Tech Stocks for a complete list of technology companies – including Intel, NetApp, and Oracle – that look like good value at the moment. The theme has underperformed this year, remaining roughly flat year-to-date, versus the S&P 500 which is up by about 10%.
[Updated 9/3/2020] Value Tech Stocks
While high-growth information technology stocks have rallied sharply this year, with valuations looking increasingly stretched, we’ve picked a few stocks including Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO), and NetApp (NASDAQ:NTAP) that have relatively stable and mature businesses and still offer good value. Specifically, we have picked companies that are trading at a trailing price to earnings multiple of under 18x and have a market capitalization of over $10 billion. See our analysis Value Tech Stocks for more details on the returns and performance of these stocks. Parts of the analysis are summarized below.
Intel ($215 billion market cap, -15% YTD), the largest CPU vendor has been somewhat out of favor with investors on account of increasing competition from lower-cost ARM-based chipsets and the company’s delay in its rollout of its next-generation 7nm CPUs. However, Intel looks like good value considering its large base of existing customers, who rely on Intel processors and are likely averse to switch and also due to its vast marketing and distribution footprint. The stock trades at about 11x 2019 earnings.
Cisco ($178 billion market cap, -10% YTD), one of the largest network equipment providers, has also underperformed the market as it has struggled with top-line and bottom-line growth. However, the increasing digitization caused by the Covid-19 pandemic could drive demand for connectivity, in turn improving sales of Cisco’s networking software, and products such as switches and routers. The stock trades at about 16x FY’19 earnings.
NetApp ($10 billion market cap, -25% YTD) is a company that sells hardware and software focused on data management. While the company has seen a mixed performance this year due to weak demand from large customers and its significant reliance on hardware sales, it is looking to double down on the cloud computing market. Last month, NetApp closed a deal to acquire Spot, a leader in compute management, and cost optimization for public clouds. The stock currently trades at about 13x last fiscal year earnings.
While value tech stocks look attractive, 2020 has also created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Apple vs. Logitech shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.