5 Reasons Old Tech Is Soaring

By Tim Parker | March 22, 2012 AAA

Why put your money to work in Intel when you could watch it soar in Apple? Why buy Cisco when you could purchase Yelp? The technology sector of the stock market is a tale of a family plagued with dysfunction. There's the new and hot names, the old standards and the young startups that may or may not be the next Facebook. With Apple up more than 70% in the past year, why would investors take a second look at the old technology names? IBM has been around since 1911, but Pandora is barely a toddler. One has huge growth potential while the other may have run its course.

Not only are investors still keeping these old technology giants in their portfolio, stocks like Microsoft have hit levels not seen since 2008. Investors have been frustrated for years with Microsoft and some of the other old technology stocks, but they're now catching a bid. Why buy Microsoft when you could buy Apple? Why has old tech seen a renaissance over the past year?

For the Long Run
The hot new tech names of the past year might work for a trade, but for those who are constructing a long-term portfolio for themselves or their clients, stocks with a history of stable dividends and modest growth are more attractive than stocks like Zynga. In the long-run, will Zynga continue to make wildly popular games like Farmville? Moreover, with their current reliance on the Facebook platform, what would happen if Facebook eventually goes the way of MySpace?

Old Tech Makes the Infrastructure
Does anybody still think that Apple exclusively designs and produces the iPad? Inside the new iPad, you'll find the footprint of Samsung, Corning and LG, just to name a few. Intel supplies microprocessors for Apple's computer products and your office is likely using Cisco products as part of its network infrastructure. Although IBM doesn't market computers like they once did, they now provide infrastructure services like mainframe computers, corporate IT solutions like cloud integration, and IT consulting services. With the economic environment improving, businesses are again investing long-overdue money into upgrading their IT infrastructure.

The newest names in technology may give us wildly popular products like iPads, Angry Birds and smartphones, but old technology companies still supply the parts that make these products.

The Windows PC Isn't Dead
Even the most die-hard PC users will have a tough time arguing that the future demise of the PC is inevitable, but it's not as close as many believe. Residential users of PCs may be dropping off, but larger companies continue to invest large amounts of cash in to their PC infrastructure. Microsoft has sold more than 400 million Windows 7 licenses and 76% of all servers ship with Windows already installed.

They Are Innovating
In order to compete, you have to innovate and companies like Apple and the other new tech names must be doing just that, right? According to USA Today, the top 10 companies spending the most on research and development include names like Eli Lilly, Johnson and Johnson, and Pfizer, but topping the list is Intel. Of the top 10 companies, five are old tech names and none are new tech. No, Apple didn't make it into the top 10.

They Are Cheap
Remember the days when technology companies had P/E Ratios of more than 100? They're still out there (Amazon), but companies like IBM and Cisco trade at 15 times earnings and Intel, only 11 times. Many argue that Apple is still a bargain at 17 times earnings, but some investors who lived through the dotcom bubble are a little wary, after seeing companies with high valuations produce no profit.

The Bottom Line
For investors looking for the sexiest stocks in the technology space, old tech may have little appeal but for those who still prefer companies with a long track record, a healthy and reliable dividend, and a business model that has long-term staying power, old tech is still the place to put long-term money.

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