Even though U.S. equities have been wavering in the weeks heading into the third quarter, they have been strong over the past several years. In fact, since the bottom in March 2009, U.S. stocks have been on quite the run. That’s particularly true for technology stocks. It has left investors feeling left out and feeling as though even the cheapest tech stocks are still too expensive.
Is that true though? Are there really no cheap yet quality options left in the tech sector?
That, in fact, is not true. Granted, the cheapest tech stocks aren’t as cheap as they once were, but that doesn’t make them expensive.
My biggest suggestion? Look at what the companies are doing and what they will do, not what they have done in the past. At least, when it comes to valuing them.
Let’s start with the biggest of them all.
Cheapest Tech Stocks: Apple (AAPL)
When talking about the cheapest tech stocks, Apple (NASDAQ:AAPL) is usually one that comes to mind first. Trading at just 18 times this year’s earnings, it’s actually a reasonable figure. How so?
Let’s look at the facts.
Analysts expect Apple to grow earnings 25% this year and another 15% in 2019. On the sales front, estimates call for 14% and 4% growth this year and next. The company pays a 1.6% dividend yield and its buyback program tops $100 billion.
While its market cap is approaching $1 trillion, this name is surprisingly undervalued. That’s especially true considering its brand power, ecosystem, fast-growing Services segment and it owning the most polarizing consumer device in the world.
Oh yeah, while its dividend yield is 25 basis points below that of the S&P 500’s, it’s growth is better and its valuation is lower. Apple’s buyback is unrivaled by any other company, as well.
Cheapest Tech Stocks: Intel (INTC)
Intel (NASDAQ:INTC) is a somewhat controversial pick. The company is in the midst of pivoting its business into high-growth secular themes. While growth isn’t as robust as some of its peers, Intel is a low-valuation stock that’s grasping tomorrow’s trends. However, its CEO is also out after it was realized he had a former relationship with an employee.
How Intel runs its corporate policies is up to it and the board. But former CEO Brian Krzanich is very good at what he does, and it’s a shame to see him leave.
In any regard, Intel trades at just 12.5 times this year’s earnings. Estimates call for earnings to grow 15.6% this year and 3.5% next year. That goes alongside revenue growth of 9% and 3% in 2018 and 2019, respectively. It also pays out a 2.5% dividend yield.
For those that want more growth, they can consider owning Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). Investors could also apply the basket approach and own all three.
In any regard, we need to see INTC stock hold the $46 level. Seeing it fall below trend-line support was bad enough. But below $46 and INTC will be below a significant support level and its 200-day moving average.
Cheapest Tech Stocks: Skyworks (SWKS)
One could make the case for super-low-valuation stocks like IBM (NYSE:IBM). They could even make the case for reasonably priced, high-growth stocks like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
However, we’re going to stick with a smaller name, one that has a combination of yield, growth and value: Skyworks Solutions (NASDAQ:SWKS). Let’s dive right in.
Analysts expect the company to grow earnings more than 10% this year and roughly 10% in 2019. On the sales front, they are looking for growth of 5.5% this year and an acceleration to 7.2% in 2019.
Admittedly, there’s nothing too crazy here with these numbers. However, trading at 22 times earnings and less than 12.5 times next year’s estimates, SWKS is far from overvalued. Although not massive, throw in its 1.3% dividend yield and it’s kind of difficult to find a problem here.
Decent yield, double-digit earnings growth this year and next and mid-to-high-single-digit revenue growth in 2018 and 2019. Sounds like a winner to me, even though the charts have not been cooperating. We really need to make sure SWSK doesn’t fall below this $95 to $92.50 area though. If it does, its April lows are on the table.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and NVDA.
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