Technology Values

12/19/2014 9:00 am EST

Focus: STOCKS

John Buckingham

Editor, The Prudent Speculator

Given reasonable valuations for the stocks we own, the improving economy and the accommodation of central bankers, we can’t help but remain enthusiastic about the prospects for our portfolios, suggests value investor John Buckingham in The Prudent Speculator.

That said, we still have no ability to predict when rallies and retreats will occur.

We continue to say what we have been saying for nearly four decades: the long-term trend is up, but not without a few scary setbacks along the way. Meanwhile, here's a look at two favored technology stocks.

Microsoft (MSFT)

Last quarter, software titan Microsoft beat on both the top and bottom lines. During the period, cloud computing grew substantially, Windows continued its expansion and hardware was driven by strong sales of the Surface Pro.

We like that MSFT is working hard to make all of the different versions of Windows work together. In our view, it’s extremely important from a market share standpoint to have numerous devices that seamlessly interact.

We feel that the company has lagged behind the competition in this area in recent years, and we are pleased that MSFT is making progress to bring everything back together.

We believe that cloud computing will be a key source of future growth and staying focused on this aspect of the business will be critical to success.

The company returned $4.6 billion to shareholders last quarter via dividends and buybacks, and we like that the next dividend to be paid will be $0.31 per share, an increase of 11%, which brings the yield to 2.6%.

Qualcomm (QCOM)

Qualcomm is a designer and manufacturer of wireless communications equipment.

QCOM holds a large number of wireless-related patents and is a key contributor to the development of CDMA, a communications technology that is heavily used around the world.

QCOM continues to build on its position as a global leader in 3G/4G/LTE cellular data chips. While demand remains strong in most regions, China is of particular concern for QCOM, as disputes with the Chinese over intellectual property drag on the region’s earnings potential.

We believe that piracy will always present a certain challenge; however, we feel that the superiority of Qualcomm’s 4G/LTE chips and the speed with which the Chinese telecoms wish to roll out devices will strongly encourage the parties to settle their disputes.

QCOM  has a great balance sheet with over $10 per share in cash and a 2.3% dividend yield.

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