Apple who? Microsoft, Intel rule DowSeptember 11, 2014: 12:20 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.
PCs aren't dead yet. Sure, you're probably reading this on a phone or tablet. Maybe you'll one day see stories right in front of your eyes on your Google Glass or Oculus Rift.
But big businesses still mostly use computers in their offices. And that's a main reason why Windows maker Microsoft and semiconductor giant Intel, the two companies so tied at the hip that they have the Brangelina-esque mashup nickname of Wintel, are among the hottest stocks on Wall Street this year.
Shares of Intel (INTC) are up 33% so far in 2014. That makes it the best performer in the Dow Jones Industrial Average. Microsoft's (MSFT) stock is up 24%. It's the second biggest gainer in the Dow and on par with Apple's (AAPL) gains this year.
Investors seem to realize that Intel and Microsoft both stand to benefit from new demand for corporate PCs and servers now that Microsoft is finally pulling the plug on two popular products that many businesses rely on.
Windows XP has already been phased out and Microsoft recently announced that it will end support for Windows Server 2003 next July. The end of XP could lead to more adoption of Windows 8 in the workplace. And Microsoft is now touting Windows Server 2012 and its cloud-based Azure platform.
Increased software sales from Microsoft help Intel because it leads to stronger demand for the chips it makes that run PCs and servers. In fact, shares of former Dow component Hewlett-Packard (HPQ) are up more than 30% this year in part due to hopes for a rebound in hardware sales.
Still, it's not as if Microsoft and Intel are sticking solely to PCs. Both companies realize that they must adapt to the changing tech world.
Two of Intel's most rapidly growing divisions are units making chips for data centers and the so-called Internet of Things (i.e. connected devices in your home.)
And Microsoft, under new CEO Satya Nadella, has been emphasizing the cloud as well as other growth areas, such as gaming. There are reports that Microsoft may soon acquire the maker of the popular Minecraft game for $2.5 billion. If that happens, it's a big addition to Microsoft's Xbox franchise.
Wall Street clearly likes this strategy. It's telling that Intel and Microsoft are both performing well even as more rapidly growing companies like Apple and Facebook (FB) -- which are arguably the two most important tech companies helping to shape consumer tech trends -- are thriving too.
Investors have often made the mistake of giving up on "older" companies out of fear that they will soon be obsolete. But there's nothing wrong with being old or mature as long as you have an innovative management team that's constantly looking for ways to avoid being stuck in the past.
Microsoft appears to have that with Nadella and so does Intel with new CEO Brian Krzanich.
It doesn't hurt either that both companies trade at relatively reasonable valuations and that each pays a dividend that yields 2.6% -- higher than the rate on a 10 Year U.S. Treasury bond. So Intel and Microsoft offer the best mix of growth and safety at a time when investors are craving both.
Reader Comment of the Week! The biggest shock from Apple's product launches on Tuesday was probably that its wearable is going to be called the Apple Watch instead of the iWatch. But the lack of drama didn't seem to be a problem for investors. Apple's stock is up for the week so far.
The appearance by U2 was also expected -- although dropping a new album for free to all iTunes users was a pleasant surprise. Before the Apple event began, I asked followers what song U2 should play.
The winner is one of my colleagues from across the pond. He suggested that the boys from Dublin add a little twist to a song they covered on "Rattle and Hum."
Nice one, Mark! I still love the Hendrix version of Dylan's classic the best. I also have to admit that the song was an appropriate choice since there was "too much confusion" at the beginning of Apple's live stream webcast of the proceedings. Still can't get over the overly loud Chinese translation feed and Lost-like jumps back and forth in time!