- (0:30) - Growth Stocks Transitioning To Value
- (3:45) - IBM’s Transition To a Value Stock
- (8:15) - Breaking Down Microsoft and Intel: Are They Value Stocks?
- (13:00) - Can Cisco Transition Into A Value Stock This Year?
- (16:45) - Is Apple Becoming A Value Stock?
- (19:30) - Learning From Sony’s Transition To Value
- (26:10) - Episode Roundup: IBM, AAPL, CSCO, SNE, INTC, MSFT
Welcome to Episode #128 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Technology continues to be one of the hottest sectors among investors. For the past 30 years these companies have been on the cutting edge of transformations in retail, the Internet, personal computing and, coming soon, artificial intelligence.
But even tech titans mature as companies. The days of 20% revenue growth a year fade unless there’s a new product or acquisition which can boost growth rates.
From Growth Superstar to Value
It’s not easy going from the big kid on the block that everyone wants to play with to a more mature, lower growth company.
It doesn’t happen overnight.
Take IBM IBM.
It had been a big growth story for decades but in this new century, that growth has slowed considerably.
Sales are expected to decline by 1.6% in 2019 and another 0.3% in 2020. Investors will be compensated by a healthy dividend for their patience, currently yielding 4.7%.
But the Street is clearly valuing IBM as a value stock. It has a forward P/E of just 9.7.
Tech Titans Now Value Stocks?
1. Microsoft MSFT was the start-up in the early 1980s when IBM hired it to create an operating system for its PC. But it has evolved beyond its Windows product and now is a cloud and social media player. Is Microsoft in a transition towards a value stock or is there still plenty of growth left on the horizon?
2. Intel INTC has a forward P/E which indicates it may have already transitioned over to a value stock. It’s trading at just 11x. But is that all it takes to be considered a value play?
3. Cisco CSCO had one of the top IPOs of the 1990s. It was included on the list of the “tech titans” during the dot-com boom. But now, it’s revenue growth is expected to be in the single digits for 2019 and 2020. Is it a value stock now?
4. Apple AAPL makes one of the most popular products on the planet, the iPhone. But for the first time since it was introduced in 2007, sales of that product are actually on the decline. Is this the end of Apple’s growth story?
The transition from growth over to being a value stock can be shocking for some long-time growth investors. But for value investors, it can provide an opportunity.
What else should you know about the future of the big technology stocks?
Listen to today’s podcast to find out.
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