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Tech Earnings in Focus — Who Should You Buy?

This week brings reports from Intel, IBM, Google ... buckle up


We are pleased to bring you a new feature on Our Stock of the Week will explore a hot stock from all the angles — fundamental, technical, options, you name it. And we’ll dive deep into its industry to lay out the competitive landscape. This week we’ll be looking at search titan Google. Check back all week for more coverage — click on the icon below for our full roundup.

Stock of the WeekThis week we will start to see earnings reports from the leading technology companies. Giants like Intel (NASDAQ:INTC), IBM (NYSE:IBM) and Google (NASDAQ:GOOG) will release their sales and earnings results, and Wall Street is watching carefully.

The recently reported 14% decline in PC sales has many analysts casting a suspicious eye at tech stocks as consumer weakness in computers and electronics could lead to lower revenues and compressed profit margins — spelling disaster for these onetime growth leaders. Many analysts expect the tech companies to post their first year-over-year earnings decline in four years, which could lead to selling pressure in the stocks.

The technology industry is undergoing something of a sea change. There is a strong trend away from PCs and laptops in favor of tablets and smartphones. Data storage is moving form onsite data centers to the cloud in order to reduce costs. Software sales are slow; corporations have delayed new purchases updates until the economic picture strengthens. Growth at many of the largest tech companies will match the anemic global GDP rate of increase.

Fortunately, we have an objective tool to help us measure the fundamentals and performance of the big tech companies as they prepare to release results. Portfolio Grader measures stocks on earnings momentum, analysts’ estimate revisions and past surprises. The better the grade, the better the chance these stocks will report solid revenues and earnings.

Intel is among the first big techs to report — I caution you not to expect much from the semiconductor leader. The company saw a small sales decline in 2012, and this quarter is not going to be much better. The stock gets the lowest possible rating of “F” as analysts have lowered their expectations and profits have lost momentum. The slow corporate enterprise market and declining PC sales could keep this stock in the doldrums for an extended period of time.

The outlook is not much better for the leading software company, as results at Microsoft (NASDAQ:MSFT) have not been very robust either. The company reports Thursday, and I would not expect any positive fireworks form the company. Estimates for the company have tumbled in the past 90 days as analysts have rushed to lower estimates. Microsoft is not competitive in the growing tablet and smartphone markets — yet — and that hindrance will continue to limit the upside. The shares are rated “D” by Portfolio Grader: a sell.

We get results from IBM on Thursday and they should be solid but not spectacular. The company had a revenue decline in 2012 and the recovery in sales looks to be in the low single digits for this year. Growth in emerging markets, cloud computing and software should help margins widen somewhat so earnings should be up a little more than that. The stock is rated “C” by Portfolio Grader and is a hold at current levels.

The bright spot in this week’s tech earnings should come from the search and advertising companies. Yahoo (NASDAQ:YHOO) reports after the close today, and the stock is firing on all cylinders. The company has been blowing away the estimates for the past year and receives a strong buy rating of “A.” Google, which reports on Thursday. has also been showing very strong results. The stock was upgrade to a buy rating in January and I expect another strong earnings season.

The technology industry is undergoing big changes — it’s going to be difficult to separate winners form losers without an objective measurement of the fundaments. Fortunately, that’s exactly what my Portfolio Grader stock tool is designed to accomplish.

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