Tech Giants: Are Blue Chip Tech Stocks A Smart Way To Go?

By Kapitall | January 22, 2012 AAA


Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA

If you're an investor who thinks "slow and steady" has a place in your portfolio then you probably enjoy Blue Chip stocks.

As the tech market is regaining traction in the hearts and minds of investors, you may also be wondering which tech stocks offer the slow growth and reliability indicative of a Blue Chip.

Jeff Macke writes (via Yahoo! Finance) that he understands tech stocks haven't been trading at their best lately, and fourth quarter earnings haven't exactly been promising. But for some of the bigger blue chip names in the industry he holds out hope for 2012.

Why? Because according to David Garrity of GVA Research, "relatively low variability in performance is going to be the theme that pays for investors in technology this year."

Specifically, Macke and Garrity discuss future prospects for the old but reliable tech companies Intel (INTC) and Microsoft (MSFT). "While they do have an attractive dividend yield now, the odds are better than 50/50 that they'll be able to raise that dividend over the course of the year," Garrity predicts.

Blue chips are partially identified by their ability to operate profitably in bull and bear markets. And although they are not known for fast growth, Macke says "if you don't find yield and growth a financially sexy combination you probably shouldn't be running your own portfolio."

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.



Business Section: Investing Ideas

So we're wondering, which blue chip tech companies are worth a closer look?

For ideas, we collected data on profit projections, and identified a list of the largest tech stocks that have seen an increase in their profit outlook for the next fiscal year.

In addition, all of these stock prices have failed to adjust to the rise in earnings estimates, signaling that a potential mis-pricing may have occurred.

Is the market underestimating these tech giants that have seen a rise in their profit outlooks?

List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)

1. China Telecom Corp. Ltd. (NYSE: CHA): Provides wireline and mobile telecommunications services in the People's Republic of China. Market cap at $43.1B. The EPS estimate for the company's current year increased from 3.3 to 3.31 over the last 30 days, an increase of 0.3%. This increase came during a time when the stock price changed by -9.83% (from 57.26 to 51.63 over the last 30 days).

2. Red Hat, Inc. (NYSE: RHT): Provides open source software solutions to enterprises worldwide. Market cap at $9.06B. The EPS estimate for the company's current year increased from 1.05 to 1.07 over the last 30 days, an increase of 1.9%. This increase came during a time when the stock price changed by -3.24% (from 46.05 to 44.56 over the last 30 days).

3. Seagate Technology PLC (NYSE: STX): Designs, manufactures, markets, and sells hard disk drives for the enterprise, client compute, and client non-compute market applications in the United States and internationally. Market cap at $8.33B. The EPS estimate for the company's current year increased from 3.1 to 4.87 over the last 30 days, an increase of 57.1%. This increase came during a time when the stock price changed by 30.19% (from 15.07 to 19.62 over the last 30 days).

4. Western Digital Corp. (NYSE: WDC): Engages in the design, development, manufacture, and sale of hard drives worldwide. Market cap at $7.94B. The EPS estimate for the company's current year increased from 3.26 to 4.12 over the last 30 days, an increase of 26.38%. This increase came during a time when the stock price changed by 9.33% (from 30.64 to 33.5 over the last 30 days).

5. NetEase.com, Inc. (Nasdaq: NTES): Engages in the development of applications, services, and other technologies for the Internet in China. Market cap at $5.97B. The EPS estimate for the company's current year increased from 3.78 to 3.8 over the last 30 days, an increase of 0.53%. This increase came during a time when the stock price changed by -1.47% (from 45.68 to 45.01 over the last 30 days).

6. Tibco Software, Inc. (Nasdaq: TIBX): Provides middleware and infrastructure software worldwide. Market cap at $4.13B. The EPS estimate for the company's current year increased from 1.11 to 1.15 over the last 30 days, an increase of 3.6%. This increase came during a time when the stock price changed by 2.92% (from 22.98 to 23.65 over the last 30 days).

7. Open Text Corp. (Nasdaq: OTEX): Develops, markets, sells, licenses, and supports enterprise content management (ECM) solutions primarily in North America and Europe. Market cap at $2.9B. The EPS estimate for the company's current year increased from 4.6 to 4.69 over the last 30 days, an increase of 1.96%. This increase came during a time when the stock price changed by -3.59% (from 50.71 to 48.89 over the last 30 days).

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Disclosure: Kapitall's Eben Esterhuizen and Rebecca Lipman not own any of the shares mentioned above. EPS data sourced from Yahoo! Finance.

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