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Warren Buffet Likes Tech Now. Should You?

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Alan Brochstein Discusses Investigating Large-Cap Technology Stocks 



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Recentnews reports and SEC filings confirm that Warren Buffet, long known for his aversionto Technology stocks, has dipped his toes in the water, buying over 5% ofInternational Business Machines (IBM) and establishing a 9mm share position inIntel (INTC).  I think he’s ontosomething, as I have been suggesting for quite some time.

Eightweeks ago, I shared the results of a screen ofbeaten-down Tech stocks that appeared to have reasonable growthprospects.  Most of these eight names areup dramatically, but the sector continues to offer many potential ideas thatcould appeal to both growth and value investors.  With this in mind, while I can’t promise thatthese stocks will all appeal to Warren Buffet, I wanted to screen for a list ofLarge-Cap Technology stocks that look attractive.

Hereare the parameters I employed:

·      Member of S&P 500 (75 companies)

·      Dividend Yield > 1.5% (27 companies)

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·      Trailing PE < 15X (19 companies)

·      5-Year Historical EPS Growth > 10% (11 companies)

·      Positive EPS Growth Over Next Year (9 companies)


Thecompanies that made the list aren’t recommendations.  As always, you should do your owninvestigation before purchasing any stock.

Ihave sorted the list by YTD return. Perhaps Mr. Buffet is chasing performance, as his two recent purchasesare the best performers in 2011.  Moretypically, the stocks are down slightly. The typical PE is just 10X on a trailing basis and a little lowerlooking over the next four quarters.

Thelist is represented heavily by semiconductor companies (four), but the otherfive names represent different industries. IBM is primarily services and software. Jabil Circuit (JBL) is a contract manufacturer. Microsoft (MSFT)obviously is leveraged most to software for PCs and servers, while Harris (HRS)has heavy defense exposure with its secure communications technology.  Finally, Corning (GLW) makes glass for avariety of products, with significant exposure to televisions.

Instark contrast to ten years ago, Technology stocks are among the leastexpensive in the market.   It is the largest sector in the market andoffers some great attributes, including global exposure, growth, strong balancesheets, market dividends  or higher formany companies and reasonable valuations. Warren Buffet has recently overcome long-term resistance to investing inthe sector, suggesting that the sector offers tremendous value.  The screen today is designed to identify somepotential opportunities within the sector that might appeal to conservativeinvestors.

Regards,

Alan Brochstein
Founder, InvestBy Model and AB AnalyticalServices
TradeKing All-Star Commentator

 

Disclosure:  Long INTC in models at Invest By Model

 

Inreading content in the Trader Network, you may gain ideas about when, where,and how to invest your money. Although you may discover new ideas or rationalethat may be compelling, you must ultimately decide whether or not to put yourown money at risk. Consider the following when making an investment decision:your financial and tax situation, your risk profile, and transaction costs.

AlanBrochstein maintains a cross-marketing relationship with TradeKing.

TradeKingselects and defines as All-Stars certain independent market commentators whoare recognized industry personalities and experienced traders and who providetimely market commentary via the TradeKing All-Star blog at http://community.tradeking.com/members/tk-all-star/blogs.Each All-Star commentator’s bio, related qualifications and disclosure as totheir relationship with TradeKing can be found on the All-Star blog roster,available at http://community.tradeking.com/members/tk-all-star/details.The selection of All-Stars commentators is solely based on the quality andstyle of the content provided. TradeKing does not measure, endorse, or monitorthe performance or correctness of any statement or recommendation made byindependent All-Stars commentators on TradeKing.com. Supporting documentationfor any claims made in this post will be supplied upon request by the author ofthe post, Alan Brochstein, who is solely responsible for the views expressedhere. Send a private message to All-Stars using the link below the profileimage.

Any strategies discussed and examples usingactual securities and price data are for educational and illustrative purposesonly and do not imply a recommendation or solicitation to buy or sell aparticular security or to engage in any particular investment strategy. Inreading content in the Trader Network, you may gain ideas about when, where, andhow to invest your money. Although you may discover new ideas or rationale thatmay be compelling, you must ultimately decide whether or not to put your ownmoney at risk. Consider the following when making an investment decision: yourfinancial and tax situation, your risk profile, and transaction costs. 

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