As the market for “new” tech stocks has gone wild again (see LinkedIn, Groupon, and the omnipresent chatter about Facebook), my interest has been piqued by the surfeit of tech bargains that seem to have appeared in the “old” tech stocks of yore. Cisco, Intel, Apple, Microsoft, Hewlett-Packard, all are trading at less than 7x Enterprise Value/EBITDA, throwing off significant cash flow, and sitting on cash positive (sometimes dramatically cash positive) balance sheets. Moreover, aside from Apple and Google, low valuations and shareholder grumblings have pushed these tech stocks to start offering dividends and share buybacks out of their cash hoard. And, with the luster off their stocks, the traditional fear of M&A based value destruction is (at least somewhat) mitigated.
Though some believe that we may be in a secular shift away from “old tech,” this is a sector that I’m getting more and more conviction around. If you, too, are a patient, long-term oriented investor, the risk reward may be interesting for you as well. In fact, we may not have to wait long before the market shifts its views.
Full Disclosure: Author is long shares of MSFT and AAPL at the time of writing