HP, Cisco and other tech dinosaurs roarJune 18, 2013: 1:01 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
This column is not about what the Federal Reserve is going to do next or the future of Fed chair Ben Bernanke. Capisce?
Investors have blinders (not referring to former Fed vice chair Alan) on right now. There are a lot of interesting things going on in the market that have little to do with the Fed.
Look for example at how well Hewlett-Packard (HPQ) and other "old" (mature to be polite) tech stocks have done lately.
HP has soared nearly 80% this year as investors bet that CEO Meg Whitman will turn the lumbering tech giant around.
It isn't the only tech dinosaur with ties to the moribund PC business that's thriving either.
And Cisco Systems (CSCO), a company that still generates nearly half of its sales from the pedestrian world of routers and switches, is up more than 25% in 2013. The stock hit its highest level in over three years Monday.
To ask the question made famous by Marvin Gaye (and less so by 4 Non Blondes): What's going on?
The simple answer is that these four companies are all not just as old as dirt (for tech companies at least), they are cheap as it too.
Despite HP's big rally this year, the stock is still valued at less than 7 times fiscal 2014 earnings estimates. Microsoft, Intel and Cisco are all trading in a range of 11 to 13 times profit forecasts for 2014.
All four pay decent dividends as well. Even though bond rates have started to creep higher on all that tapering talk, the 10-year Treasury yield is still a relatively low 2.2%. These four techs top that. HP yields 2.3%. Microsoft and Cisco yield around 2.8%. And Intel's yield is 3.6%.
Yes, none of these four companies are the most scintillating of growth stocks anymore. Heck, HP's sales are expected to fall in fiscal 2013 and again in 2014.
But they are stable. They have gobs of cash ("caysh" if you're Cisco CEO John Chambers): $152 billion between the four of them. It's no secret that they face big challenges ahead. And it appears that they all have management teams in place that realize they have to diversify further to avoid getting left in the stock market's version of the dust bin.
Sunil Reddy, a portfolio manager with Apex Capital Management in Dayton, Ohio, said that many of the more mature tech firms have been given a new life due to the advent of cloud computing and the mobile revolution. Investors now realize that the tech giants are not going away anytime soon.
"Investors were worried about obsolescence because of the declining PC environment. But some of these companies were probably punished too much," Reddy said. His firm owns stakes in Cisco and Microsoft.
So maybe Apple (AAPL) will join the tech dinosaur club soon? It seems like it's now undergoing the painful transformation from sexy momentum stud to boring value stock that HP, Microsoft, Intel and Cisco have already endured. Analysts have been slashing their earnings estimates on concerns that Apple does not have another disruptive, category-creating product like the iPhone or iPad in its pipeline.
It's possible that Apple investors might eventually reach a point where they are comfortable with the fact that it's likely to be a slow-growth tech stock. After all, Apple has more cash than the older techs and now pays a dividend as well. And the stock trades for less than 10 times fiscal 2014 earnings estimates.
"The overly negative sentiment that has plagued Apple for the past few months seems to be waning. The challenge will be for Apple to innovate further. But we like the stock at this price and the dividend doesn't hurt," said Oliver Pursche, co-manager of the GMG Defensive Beta Fund, which owns Intel, Microsoft and Cisco as well as Apple.
Yes, it may take some time before the transition for Apple is complete. But the recent performance of HP, Intel, Microsoft and Cisco may offer some consolation for Apple investors.
There is life for old tech stocks once the glory days have, in true Springsteen fashion, passed them by.