Tech Needs Love Now

By Glenn Curtis | May 14, 2010 AAA

Technology stocks deserve some attention right now. Earnings have been pretty solid, and the longer-term outlooks for some of the big names remain attractive. With that in mind, today we will touch on International Business Machine's (NYSE:IBM) outlook, as well as some other big names in tech.

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Big Blue, Big Numbers Expected
On Wednesday major news outlets reported that IBM's chief executive Sam Palmisano indicated that the company is looking to bring in at least $20 in EPS excluding items in 2015. This year, Wall Street expects the company to generate $11.27 a share in earnings. So if achieved that would be some very hearty growth.

It's unlikely that Palmisano would share such news, particularly so early in the game, unless he was truly optimistic about the future. If indeed the company is able to generate that type of bottom line number, there could be some nice upside to the stock in time. It currently trades at just over $132.

IBM's longevity and ability to weather difficult times also make it an interesting play. And as far as its recent performance, the company has beaten analyst's EPS estimates in all of the last four quarters. Not to mention IBM has some very deep pockets. At March 31 according to its 10-Q, it had more than $12.4 billion in cash and cash equivalents, which should give it nice flexibility to grow.

More Stocks That Compute
When it comes to chip stocks, the first two that come to many investors' minds is either AMD (NYSE:AMD) or Intel (Nasdaq:INTC), and I prefer the former. Intel is, after all, a giant in this space, and it has been kicking off ample earnings and beating estimates for the last three quarters. It's expected to earn $1.89 a share this year, meaning it trades at only a little over 12 times this year's estimate.

Longer term, the demand for chips will probably rise as individuals and businesses demand gadgets that operate quicker and more efficiently. Such an increase would play right into Intel's favor.

Microsoft (Nasdaq:MSFT) is another company that warrants a good deal of attention as it has been a dominant force in the industry and its software is likely to remain extremely popular due to its ease of use and functionality. On the earnings front it has been performing too, having beaten expectations by a fairly large amount each quarter for the last three quarters. At present, it trades at 14.4 times this year's estimate, which seems attractive given the company's dominance in its space over time and its reputation and management. It is expected to grow more than 8% per annum in the next five years.

The Bottom Line
The economy is coming back and tech has been performing. IBM, Intel, and Microsoft are companies that appear to have a bright future. Each has done well on the earnings front and each could see upside to their stock price over the next several years. (To learn more, check out our article on Technology Sector Funds.)

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