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Four Tech Stocks Every Investor Should Consider


Each of these is a stalwart of one particular corner of the technology universe; each offers investors some upside potential over the longer haul and has a solid argument for representing value at their current price levels.

A decade ago, Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL), Cisco (NASDAQ:CSCO), and Intel (NASDAQ:INTC) were known as the "Four Horsemen" of the technology world. But as the PC industry has given way to mobile and cloud computing, that quartet no longer dominates the landscape, much less the world of technology stocks. Today's list of giant, 800-pound technology gorillas – those that have and will continue to shake up the world and dominate the markets – are more likely to be companies like Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).

Then there are four technology companies out there that aren't necessarily the biggest ones in which you could invest, or even ones that you would automatically add to your portfolio in the same way that growth-oriented investors snapped up stock in Intel. But each of them is a stalwart of one particular corner of the technology universe; each offers investors some upside potential over the longer haul and has a solid argument for representing value at their current price levels.

Together, the first three on this list can provide clues to the health of the tech sector and even the corporate world, in much the same way the Four Horsemen once did. They aren't "must owns" in the same way that those 1990s generation technology giants were, but they are "should considers" – stocks that, if you don't stop to at least think through the reason to own or avoid them, you might find yourself kicking yourself about in a year or two's time.

If any tech giant comes closest to playing the same role that the Four Horsemen once did, it's Apple. This stock seems never to be out of the headlines; most recently it landed there because hedge fund manager David Einhorn lightened up on his Apple holdings, becoming just the latest in a series of investors to do just that and pushing its stock price well below its highs of the year. Apple's growth rate may be slowing, but not that much – and Apple's dividend yield has climbed to nearly 2% and may rise further if, as expected, Apple continues to boost its payout. More significantly, the company now trades at only about 12 times forward earnings, a remarkable discount given its historic growth. Not surprisingly, S&P Capital IQ just raised its rating on the stock from a buy to a strong buy.

So why is it so cheap? Two reasons, only one of which has to do with the company's fundamentals. First, there is the growing uncertainty about whether Apple can sustain its growth and continue to innovate, not just defensively, in response to new product launches like smartphones from Samsung or tablets from Amazon or Google. True, margins have contracted, but that may have more to due with the fact that whenever Apple launches new products, its initial costs tend to be higher. There's another reason for investors to be lightening up their holdings of Apple stock right now: Come 2013, no one knows what tax rate they'll face on capital gains should they decide to pocket some of their profits in the stock, so it's better to lock in those costs now and buy the shares back later should the company continue to deliver on earnings. (After all, Apple has soared more than 220% over the last five years, and is still more than 40% higher in the last 12 months.) But none of these are reasons for Apple to start trading at levels suggest that growth has stalled.

In the case of Qualcomm, investors are giving the company the benefit of that kind of doubt. Qualcomm may never reach the giddy heights that Intel once occupied, but regardless of which kind of smartphone, tablet or other device consumers snap up this holiday season, odds are that it will be powered by the high-end chips made by Qualcomm. Not surprisingly, the company's profits are soaring as a result. Even better, Qualcomm's forward-looking forecast trounced the outlook offered by most analysts. The word is that supply constraints are easing up, and that will be good news for the company's revenue going forward. Here's a stock that already trades at a slight market premium, but that could go higher still. Its sales won't depend on which gizmo emerges as the market favorite.
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