Despite the recent turbulence in the IT industry for 2008, I maintain that now is where you want to be. The reasoning here follows that the financial sector is struggling to keep its bad news buried, the housing market is in shambles and even retailers are struggling to maintain growth. A move into technology seems entirely logical given the strong international exposure, safe balance sheets, and the fact that IT stocks have historically low correlation with the broader markets. Let’s pick some tech bulls.
Consumer Electronics: The Net Fool Chooses Apple (NYSE: AAPL) Hey Mr. Market, why are you so down on Apple? The iPod business is fully mature. The iPhone is losing inventory to similar devices. MacWorld was losing its usual superstar perspective. I’ll tell you what, take this news and know that Apple has historically gone all out when sentiment is low. Steve Jobs & Co. is my favorite IT pick for 2008. The downside has opened up value in the stock, and I feel they have hit rock bottom!
Delving into the worrisome issues. The iPhone was underselling due to Apple’s push toward the new iPod Touch, Needham analysts noted that “Apple would have sold close to four million iPhones in its absence.” Add this to the fact that about 25%-30% of iPhones were “unlocked” from AT&T, a number that actually benefits AAPL through the carrier headache. Although iPod sales are down, I feel like the mp3 device is just on a in transition phase, and now interesting opportunities arise in mobile technology.
I feel that AAPL may be a resistance to the recession. The Mac business is healthier than ever and alone makes up for the losses in iPods. Investors are punishing high-end companies like Apple for any disappointment. The stock is 35% off its highs, trading at a premium of 24x earnings compared to 32x for its peers and has a PEG of 0.7x. They have the free cash flow we love ($6.78/share 2008 est.) and their business segments have never looked healthier. People hate this company for no reason. As Warren Buffett says: “Be fearful when others are greedy, and greedy only when others are fearful.”
COM. Team – The Net Fool chooses Corning (NYSE: GLW) Corning is the company you are looking for for LCD glass panels. This market is thriving with bigger and badder TVs coming out every day. Fourth quarter results showed management feels the same way due to continued investment in facilities and strong relationships with market leaders. The prospects for 2008 were VERY new and positive revenue streams must be found in an estimated 60%+ growth in LCD capex. GLW anticipates launching a new flexible fiberglass material and should be appreciated by the upcoming adoption of mandatory diesel filtration. No major catalyst It’s driving growth, which is definitely weird, but an attractive valuation recovers most of the risk.
Off the LCD glass, Corning continues to run the table. A new product “Gorilla Glass” that allowed input via touch screen has been easily sold to mobile phone manufacturers. Corning seems to understand the move to mobile technology and is really focused. With this in mind, Standard and Poor’s added: “Sales acceleration to 17% growth in 2008, up from 13% in 2007, driven by monetary benefits and, more importantly, by increased demand for liquid crystal display (LCD) glass substrates from TV and computer manufacturers.” Everything is going well for Corning, even Verizon is on board, a new buyer of GLW’s “ClearCurve” cable solutions. ClearCurve is the most flexible fiber in the world, 100 times more flexible than normal fiber… which apparently is very important. This new technology could unlock huge potential with the support of an industry leader in FiOS.
Corning should be a central technology holding company for all investors. They remain cheap with a PEG of 0.83x and forward PE of 13x against an estimated trade value closer to 20x. There are some risks presented by excess capacity in the LCD glass industry and potentially slower IT spending. However, I feel like retailers will continue to buy the glass for bigger screens and the fiber for faster internet. If they are overstocked and can’t sell, that’s their problem…not Cornings. These guys beat the gains by a penny and their outlook only got better. They are bullish across the board and deserve to trade at a premium in my opinion.
Solar Semiconductor: The Net Fool Chooses First Solar (NYSE: FSLR) After doubting the extreme growth behind solar technology in January 2008, it seems that it is about time that He apologized power winners like First Solar. ThinkEquity Partners gave this great stock a one-word rating, “removing bottlenecks.” After crushing earnings estimates of 53 cents a share with a staggering 77 cents gain, they appreciated 30% the day after raising 2008 guidance. Don’t let this shopping marathon Scare You We thought the run-up to the solar industry was over and they were clearly proven wrong. the year after year 280% revenue growth and the strength in EPS suggests greater future earnings power.
Operational efficiency is one of the main benefits I see from the operation in 2008. Costs per watt ($1.12) on average were down 6% for the year, and the negative currency impact of the euro was almost completely dwarfed by economic operations at the First Solar plant in Malaysia. Points of improvement have been identified and most analysts feel they can take the gold home. In particular, the first and second quarters of 2008 should show continued growth in line with the appreciation of 2007. All solar companies are trading at attractive premiums when accounting for growth. With oil moving higher, it seems that the momentum of green energy willpower stay strong. Investors should return to the field of solar energy with strong profits and demand in mind.
The Malaysian plant upgrade may have a negative impact on First Solar’s first quarter 2008 earnings. On the other side of the coin, we expect an increase in production and we see that operating margins remain at levels of more than 30%. I wouldn’t be at all surprised to see more good news in targeting. We expect their PE and PEG indices to be more in line with the industry, as the current premium they appear to be trading at is a result of explosive growth over the past year. The execution was flawless in 2007, and with nothing but green lights thus far… First Solar represents a great long-term growth play.
Technological infrastructure. – The Net Fool chooses Akamai (NYSE: AKAM) Akamai is alive and kicking in 2008. After considering them in early 2007, they have continued to show strength in their industry. In a recession-prone market, there is a bit of security around an Internet-based company. There is VERY There is strong demand for entertainment and media on the Internet, and Akamai is the ideal company to deliver the products. AKAM posted a big jump in earnings during the fourth-quarter earnings call, which easily beat analyst estimates. After growing Forecast for 2008 With the continued demand for media streaming on the network, it is becoming difficult to make a negative impact on this company.
Akamai Technologies has had an incredible run over the years. Foiling the bears yet again in its latest earnings call, AKAM gained momentum from its 52-week lows. Now they have extended their streak of sequential revenue and profit growth to 20 consecutive quarters! Plus, her balance sheet is as healthy as ever; once again they have increased free cash flow to $634 million from $566 million. With a leading role in a driving content delivery market, analysts like Canaccord Adams suggest the potential for revenue and earnings growth.”in excess 30% for the next few years.”
Analysts often question Akamai’s assessment of whether they are cheap or online. I think they are on the cheap side as they are 45% below their 52 week high and are trading at a 0.7x PEG. You might be tempted to test the waters if they drop below $32. They are trading at a slight premium on a price-earnings basis, but I think this is more than deserved as they appear to be a confident downturn holding in information technology. With price sensitivity expected to fade along with reduced bandwidth costs, it would appear that Akamai’s market needs to be headed in the next few years.
That’s it for information technology. There are certainly some excellent stocks to be found in the sector, despite the notion that technology is always more volatile and dangerous than finance, conglomerates and the like. While February is a historically bad season for IT, I wouldn’t mind doing my market shopping a little earlier with a lot of negative sentiment unfairly dragging down perfectly healthy companies.
-The network idiot