Top 10 tech trends to watch in 2013
December 10, 2012
Dec. 10, 2012, 6:01 a.m. EST
Recent stumbles aside, 2 tech stocks to buy
Commentary: These giants look good in the long term.
By Jeff Reeves
Rockville, MD (MarketWatch) — Tech stocks are on a tear lately, with big
names like Cisco, Dell and even Facebook all tallying gains of more
than 10% in the past month alone.
But looking forward, you have to wonder how long some of these rallies
will last. Big-time tech trends include a secular decline in PC sales,
cost-per-click troubles in Internet advertising and a general softness
in corporate IT spending. And some big launches — BlackBerry 10 from
Research in Motion and the Surface/Windows 8 line from Microsoft are the
biggies — are really make-it-or-break-it products.
So is there still time to ride the tech rally? Sure, but you need to
pick the right stocks, with the right time horizon. And right now I’m
more interested in some of the big, stable names that have fallen out of
favor rather than these high-fliers who have recently become popular on
Wall Street.
Two stocks I am closely watching are chipmaker Intel
INTC
-0.52%
and Internet behemoth Google
GOOG
+0.22%
. I have a personal stake in INTC, initiated in November, and I am
currently watching Google very closely for an entry back in the $650
range we saw in mid-November.
The Case for Intel
Investors should know the obvious risks to Intel amid the decline of PC
sales and an 18% decline in INTC stock so far in 2012. But for many
reasons, I think this is a great long-term value buy right now.
Scale
: Intel is the largest semiconductor manufacturer on the planet, with
15.9% market share in 2011 — bigger than numbers two and three combined.
While the mobile business might eat into some of that market share over
time, that is not the case right now. In fact, Intel’s 2011 market
share surged to a 10-year high, according to industry publication
iSuppli.
Dividend
: The yield of this tech giant is an impressive 4.6% right now. That in
itself is attractive, but the increase in distributions is also a plus
for me. In late 2007, Intel paid 11 cents a quarter. Now it’s 22 cents. A
100% increase in dividends over the past five years — a period when
some payers cut or eliminated dividends because of the financial crisis —
is no mean feat. Furthermore, that 22 cents a quarter is a roughly 40%
payout ratio as a portion of total earnings. So it’s not just
sustainable, but also set up for incremental increases in the next few
years.
Valuation
: Intel’s forward guidance has been disappointing, but at current
estimates, the FY2013 earnings forecast is $2.03 a share. Divide that
EPS by the current pricing of around $20, and you get a forward P/E
ratio of less than 10. Furthermore, Intel stock has a five-year
price-to-earnings-to-growth ratio of 0.8 and a one-year PEG of less than
1.1 — implying that INTC has become pretty fairly valued after the
recent declines.
Apple hopes
: This isn’t an investment thesis alone, but it’s a nice sweetener:
There are rumors that Intel is negotiating with Apple to supply it with
iPad processors. Intel is trying to make a big push into mobile, and
this could be a game-changer for the company.
As I said, I personally have a long position in Intel with a cost basis
of $21.50. I think any purchase under this level is a decent long-term
investment so long as you’re willing to buy-and-hold for at least 12
months.
The case for Google
Another tech giant that has stumbled lately is Google. The stock has
underperformed year-to-date after spring’s big run evaporated and poor
Google earnings recently that resulted in an intraday decline of as much
as 10%. There’s also the threat of an antitrust lawsuit from the
European Commission or U.S. regulators based on its search dominance,
among other things.
But long term, you’d be hard-pressed to find a company that is more
plugged in to the future of mobile and the way the world uses the
Internet. Here’s why I think Google has staying power in the short term —
and big potential in the next year or two:
Long-term fundamentals
: Earnings have grown rapidly in the past five years, from $13.31 per
share in 2008 to projections of $32.25 in fiscal 2012 according to
Standard & Poor’s. Revenue has grown impressively, too, from $21.8
billion in fiscal 2008 to a projected $41.5 billion this year. That’s
almost triple the profits and double the sales! And though earnings
missed expectations last quarter, revenue surged from $9.7 billion to
$14.1 billion. Considering the top-line trouble at many corporations,
I’m willing to cut Google a little slack on its recent miss. Oh yeah,
and it’s projecting a 27% jump in profits in fiscal 2013 from fiscal
2012. Some of the tech blue-chips rallying right now are lucky if
they’re expecting to simply tread water next year on the EPS front.
Smartphone dominance
: Considering the massive 75% market share that Android commands on all
mobile devices, it’s hard to find a better way to play the death of the
PC than with Google. And the company’s ambitious line of Nexus devices —
a four-inch smartphone, a seven-inch mini tablet and a 10-inch premium
tablet — hint of the possibilities in the hardware arena in addition to
just providing software and content. This is all just a hunch, of
course, since hardware is certainly not a cash cow currently for Google,
and the Android OS remains open-source. But it’s hard to ignore the
potential, especially if efforts like the new Windows Phone and
BlackBerry 10 fall flat and GOOG tightens its grip even more on the
market.
Innovation
: Google has a long history of innovation, interesting buyouts and
creative ways of rethinking the tech landscape. After all, Android was
acquired in 2005, and it was years before the viability of the software
was proven out. Will its next big hit be travel bookings or reviews
thanks to the purchase of Frommer’s travel guides and Zagat restaurant
ratings? Will it be Google Offers, a daily deals service in the vein of
Groupon? Will it be a resurgent Google Analytics platform that takes on
industry standard Omniture from Adobe? You can accuse Google of a lot of
things, but you can’t accuse it of sitting still.
Admittedly, both of these plays are long-term investments — and because I
have a personal stake in Intel, I could be letting my own interests
skew my perceptions.
What do you think of these picks? And what’s your favorite long-term tech buy? Let me know in the comments section below.
Jeff Reeves is the editor of InvestorPlace.com
and the author of “ The Frugal Investor’s Guide to Finding Great Stocks
.” Write him at editor@investorplace.com
or follow him on Twitter via @JeffReevesIP
. As of this writing, he held a long position in Intel but no other stocks named here. 
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