These five stocks are all giants in their industry. How are they doing against their upstart competitors?
International Business Machines Corp. (IBM): Shares are trading around $191 at the time of writing, against their 52-week trading range of $141.13 to $191.33. At the current market price, the company is capitalized at $224.93 billion. Earnings per share for the last year were $12.64, and it paid a dividend of $3.00, yielding 1.57%.
IBM has been in business over 100 years, so it’s the granddaddy of tech companies. The secret of its success is in its personnel and intellectual property. Since Lou Gerstner went in and shook things up, Big Blue has developed a lot of flexibility, offering services, enterprise solutions, software, and more. So it can adapt to technology changes better than most of its competitors.
Since Warren Buffett’s headline-grabbing $10.7 billion purchaseof IBM stock a few weeks ago, the question really boils down to this - is it too late to buy? IBM’s price to earnings ratio of 15.26 is high relative to its main competitor, Hewlett-Packard (HPQ), which is at 8.62. But that changes when you factor in growth projections – IBM’s earnings to growth ratio is 1.41, compared to 1.55 for HPQ. Plus, IBM has grown the dividend 15% in 2010-11, 18% in 2009-2010 and 10% in 2008-09. So it’s still a good buy.
Apple Inc. (AAPL): Shares are trading around $393 at the time of writing, against their 52-week trading range of $310.50 to $426.70. At the current market price, the company is capitalized at $365.27 billion. Earnings per share for the last year were $27.67, and it paid no dividend.
Apple has been the hot tech stock for several years now. It hasn’t had a whole lot of viable competition, although that’s not from want of trying. But Apple recently was on the losing end of two rulings which went to Samsung Electronics Co. Ltd (SSNLF.PK): the US District Court in San Jose, California, (and also the Federal Circuit) denied Apple an injunction bid to ban Samsung’s smartphones and tablets in the US, and the Australian court ruled that Samsung Electronics may sell their Galaxy 10.1 tablets in the country.
So the competition is heating up. The big question is whether Apple will be able to maintain its visionary trajectory without Steve Jobs at the helm. The company is expected to grow by more than 20% annually, yet its forward PE ratio is only 10. So it’s a good bet that in the short term, the answer is yes.
Hewlett-Packard Company Common (HPQ): Shares are trading around $28 at the time of writing, against their 52-week trading range of $21.50 to $48.87. At the current market price, the company is capitalized at $55.87 billion. Earnings per share for the last year were $3.27, and it paid a dividend of $0.48, yielding 1.71%.
There has been lots of bad news at HPQ in the last few months. It lost its title as the world’s biggest maker of server computers to IBM in the third quarter. And the damage that HP is suffering from the ongoing uncertainty in the marketplace over its Itanium-based servers is also sending some former HPQ customers to IBM.
New CEO Meg Whitman is hoping to significantly grow the company’s software sales, driven by the recent acquisition of Autonomy Corp. But the short-term result of that purchase was a credit ratings cut by Standard & Poor’s, making it more expensive for HP to issue short-term commercial paper and long-term bonds. The price has gone down 34% over the last year. So has it gotten low enough to be a good buy? No. There is too much uncertainty, including a revolving door for upper management.
Cisco Systems, Inc. (CSCO): Shares are trading around $19 at the time of writing, against their 52-week trading range of $13.24 to $22.09. At the current market price, the company is capitalized at $101.01 billion. Earnings per share for the last year were $1.15, and it paid a dividend of $0.24, yielding 1.28%.
Cisco’s industry, Networking and Communication Devices, is inherently more volatile than Computer Systems or Personal Computers, the sectors for IBM, AAPL and HPQ. The way we connect to information and entertainment is changing every day. Cisco just launched a new set of cloud services on 12/7/11, called CloudVerse, aimed at adding management capabilities to public, private and hybrid clouds and serve Cloud Service Providers (CSPs), so Cisco is staying on top of the curve.
It's a good buy with a low beta compared to their major competitors: the price to earnings ratio for CSCO is 16.34, compared to 24.59 for Juniper Networks, Inc. (JNPR), 80.56 for Riverbed Technology, Inc. (RVBD) and 40.02 for Aruba Networks, Inc. (ARUN). And the company is leveraging its relative stability to become one of the first in its sector to pay dividends, a new development this year. All in all, the stock is a good buy on a discounted cash flow basis but over the long-term, questions remain about Cisco's viability. Cisco shares are worth $22 apiece using a 10% cost of equity.
Intel Corporation (INTC): Shares are trading around $25 at the time of writing against their 52-week trading range of $18.85 to $25.50. At the current market price, the company is capitalized at $129.08 billion. Earnings per share for the last year were $2.31, and it paid a dividend of $0.84, yielding 3.31.
Intel is in an intensely competitive environment. But it has lots of cash for R&D and, like IBM, it has consistently outperformed market expectations recently. In the last quarter, its 27% gain dwarfed the 3.5% gain in the S&P 500 overall. And the future looks promising: the firm has extended its collaboration with Google (GOOG), which will drive greater revenue from mobile computing. Trading at 10.8 times forward earnings, the stock is a good buy. An added benefit for investors looking to buy the stock is the dividend, which has a healthy yield of 3.31%, compared to 2.25% for one of its main competitors, Texas Instruments (TXN).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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