Warren Buffet Likes Tech Now. Should You?

Alan Brochstein Discusses Investigating Large-Cap Technology Stocks 

Recent news reports and SEC filings confirm that Warren Buffet, long known for his aversion to Technology stocks, has dipped his toes in the water, buying over 5% of International Business Machines (IBM) and establishing a 9mm share position in Intel (INTC).  I think he’s onto something, as I have been suggesting for quite some time.

Eight weeks ago, I shared the results of a screen of beaten-down Tech stocks that appeared to have reasonable growth prospects.  Most of these eight names are up dramatically, but the sector continues to offer many potential ideas that could appeal to both growth and value investors.  With this in mind, while I can’t promise that these stocks will all appeal to Warren Buffet, I wanted to screen for a list of Large-Cap Technology stocks that look attractive.

Here are the parameters I employed:

·       Member of S&P 500 (75 companies)

·       Dividend Yield > 1.5% (27 companies)

·       Trailing PE < 15X (19 companies)

·       5-Year Historical EPS Growth > 10% (11 companies)

·       Positive EPS Growth Over Next Year (9 companies)

The companies that made the list aren’t recommendations.  As always, you should do your own investigation before purchasing any stock.

I have sorted the list by YTD return.  Perhaps Mr. Buffet is chasing performance, as his two recent purchases are the best performers in 2011.  More typically, the stocks are down slightly.  The typical PE is just 10X on a trailing basis and a little lower looking over the next four quarters.

The list is represented heavily by semiconductor companies (four), but the other five names represent different industries.  IBM is primarily services and software.  Jabil Circuit (JBL) is a contract manufacturer. Microsoft (MSFT) obviously is leveraged most to software for PCs and servers, while Harris (HRS) has heavy defense exposure with its secure communications technology.  Finally, Corning (GLW) makes glass for a variety of products, with significant exposure to televisions.

In stark contrast to ten years ago, Technology stocks are among the least expensive in the market.   It is the largest sector in the market and offers some great attributes, including global exposure, growth, strong balance sheets, market dividends  or higher for many companies and reasonable valuations.  Warren Buffet has recently overcome long-term resistance to investing in the sector, suggesting that the sector offers tremendous value.  The screen today is designed to identify some potential opportunities within the sector that might appeal to conservative investors.

Regards,

Alan Brochstein
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator

Disclosure:  Long INTC in models at Invest By Model

In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.

Alan Brochstein maintains a cross-marketing relationship with TradeKing.

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Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.