Looking For A Bounce? Buy Big Cap Tech (CSCO, MSFT, INTC, HPQ, DELL)

August 31, 2010, 3:13 pm

If you are bullish on stocks going into September, the place to be is the big cap technology sector. These stocks are downright cheap. If the market falls, they will likely get cheaper, but if we are putting in a bottom, this is undoubtedly a great buying opportunity for both the short and long term. Every single one of these stocks has been beaten down and is trading at a very compelling valuation. Furthermore, these names are the cream of the crop in the technology space. If the market can find a bottom in the next couple of weeks, you will be grateful to have added Cisco Systems, Inc. (CSCO), Microsoft Corporation (MSFT), Intel Corporation (INTC), Hewlett-Packard Company (HPQ) and Dell, Inc. (DELL) at these depressed levels. With the exception of DELL, which has an awful lot of problems, but is wildly cheap, these stocks are the bluest of the blue chips in the tech space. Furthermore, they have very large market caps, relatively low betas, and entrenched, profitable business models. Every single one of them, however, has had a setback recently. For example, on Monday Intel lowered its Q3 revenue guidance. Earlier in the month, Cisco also provided very conservative guidance. On August 6th, Hewlett-Packard’s CEO Mark Hurd resigned unexpectedly over expense-account irregularities which were discovered during a sexual harassment investigation. These disappointments, however, have created a tremendous opportunity for investors who are not trying to pick an absolute bottom in the market. Lets take a look at the valuation metrics for these stocks. CSCO is now trading at a trailing P/E of 15.05, a forward P/E of 10.04 and a PEG ratio of 0.98. Ten times forward earnings! In the last month alone, the shares have fallen over 13%. They are on sale! No matter what happens in the coming months, CSCO will remain one of the leading companies in the world, even if there is a double dip recession. How about Microsoft? MSFT is trading at a trailing P/E of 11.14, a forward P/E of 8.89 and a PEG ratio of 0.97. Add to that a very respectable dividend yield of 2.22%, and you have yourself a bargain. Intel is trading at a trailing P/E of 10.58, a forward multiple of 8.83, and a PEG ratio of 0.74. The stock has fallen more than 6.5% in just the last 5 trading sessions. Unless the world completely falls apart, long term investors who buy INTC at these levels will make money. Period. Hewlett-Packard may just be the best bargain in the bunch. This stock trades at a trailing P/E of 10.74, a forward P/E of 7.71, and a PEG ratio of 0.84. It also offers a dividend yield of 0.83%. While not as high quality as the previously mentioned companies, DELL sports similarly cheap valuation metrics and could see a very fast ride higher if the market turns. DELL trades at a trailing P/E of 14.88, a forward multiple of just 8.17, and a PEG ratio of 1.44. Whether you want to set yourself up for a short term bounce in equities, or are investing for the long term, these names are unbelievably attractive at current levels. The risk/reward is compelling because these stocks represent ownership stakes in some of the most high quality technology franchises on the planet – and they are selling at a steep historical discount. If you are trading, look to establish entry points in these names in the next couple of days and use stop losses in order to limit risk. If you are investing, buy a little now and scale into a full position size over the next couple of months if the situation continues to look attractive (if all hell has not broken loose).

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