Despite a turbulent ride over the past decade, technology stocks are beginning to look good to subprime- and credit-market-weary investors. Although tech—or anything else, really—is never a completely safe bet, "right now we think big and boring is beautiful," says Scott Kessler, head of the technology group at Standard & Poor's Equity Research, who recommends a small number of large-cap stocks with proven track records. Here are five tech stocks worth a look.
Intel. The world's largest semiconductor company last month unveiled vPro processor technology for enhanced security, and Xeon processors for energy efficiency. "Maybe they are well known and people feel like their best times are behind them, but they have very good franchises, global exposure, and well-diversified businesses that are generating a lot of cash, and they are using the cash to pay dividends and buy back stock," says Kessler, referring to Intel's announcement this week that it will pay an 11.25 cents-per-share quarterly dividend on the company's common stock. "We think they have refocused on investment and product development. Demand is healthy, and pricing is pretty good."
Apple. This computer maker turned gadget company sold its millionth iPhone this week. But Apple has recently been saddled with complaints about high roaming charges and a $200 price cut that left early adopters—even ones who qualify for the $100 store credit—out in the cold. But a similar iPod story in 2004 didn't hurt investors for long before the lower-priced iPods found a new market. "Apple will continue to do well due to more adoptions of iPhones and headsets," predicts Christopher McHugh, vice president of Turner Investment Partners.
Applied Materials. Ever notice the similarity between computer chips and solar module cells that harness solar energy? No? Well, the engineers at the world's largest supplier of products and services to the semiconductor industry did. Last week, Applied Materials announced a new ultrathin silicon solar module, SunFab, that could be used to make cheaper and more energy-efficient solar panels. "You're owning a really blue-chip company plus getting involved in alternative energy," says Kevin Landis, chief investment officer for Firsthand Capital Management.
Citrix Systems. Planning to work from home this year? Or perhaps from your cabin in the woods? You'll probably have Citrix systems to thank. "They are one of the few larger companies primarily focused on remote access infrastructure," says Kessler. "Customers want to be able to access their networks from a variety of devices, they want to be able to do a lot of different applications, they want it to be fast, and they want aspects of it to be secure."
Cypress Semiconductor. "Our favorite value stock right now is Cypress Semiconductors. Over the past two years, it has pretty much doubled in value, although it is pretty much a safe stock," says Landis, who attributes much of the growth to owning 53 percent percent of a company called SunPower, which manufactures, designs, and delivers solar cells, panels, and products. "It's a safe way to play solar and a very safe story to buy into." SunPower also claims the lofty goal of reducing the cost of an installed solar system by 50 percent by 2012.