Stock of the Week
Price as of 11/7: $14.63
A nice 20% rally unraveled in only two days. Unfortunately the economy is getting worse not better. On Friday, the unemployment rate jumped to a 14 year higher of 6.5% with job losses reaching nearly a quarter of a million. Not good. The weak economic data is putting pressure on all companies to improve their balance sheets. One of the best attributes of the big blue chip tech stocks is the strong balance sheets with tons of cash, very little if no debt, and monopolistic control over their industries. Companies like Intel, Microsoft, Cisco Systems, Apple, and Google all fit this category. All five have at least $12 billion in cash each and remained highly profitable. Apple, Cisco, and Microsoft have over $20 billion in cash each. In the past, the strong balance sheets and monopolistic characteristics have given the tech stocks much higher valuations than any other sector, but the valuations have been coming down.
Google is trading for 15 times earnings and 3.7 times book. Intel is trading for 2 times book, 2 times sales, and a PE of 12. Cisco Systems is trading for 2 times sales, 3 times book, and a PE of 10. Microsoft is trading for 2.6 times sales and a PE of 10. Finally, Apple is trading for 4 times book, 2 times sales, and a PE of 15 in line with Google. Three weeks ago, I featured Researh in Motion which trades for 1.6 times sales and a PE of 10. These five stocks provide little or no dividends so these are not income plays or conservative stock, but provide long term appreciation potential once the economy eventually rebounds.