Tech Trio: Better Than Apple?

05/28/2014 8:00 am EST


Marshall Hargrave

Contributing Editor, Wyatt Investment Research

What is the next great growth story of the tech industry? One place to start is with companies that are more profitable than the largest publicly traded company in the world, suggests Marshall Hargrave in Daily Profit.

Apple (AAPL) is still the world's largest publicly traded company. It is also one of the world’s most profitable.

Apple’s net profit margin over the trailing twelve months is 21.4%, and its operating margin is 28.6%. Outlined below are three tech stocks that are even more profitable:

Oracle (ORCL)

Oracle enjoys superior margins of 29.3% because of its software-focused business model. It does not sell hardware like Apple. It is one of the leaders in enterprise and database management software.

Thus, Oracle will be one of the biggest benefactors of higher spending on cloud software and software-as-a-service.

In 2012, it bought up RightNow and Telo, spending $3.4 billion collectively. It added Eloqua in 2013 for just under $1 billion. Earlier this year it snatched up Responsys for $1.6 billion. The majority of its revenue contributions from these acquisitions are subscriptions.

That means the revenues are recurring, which will make Oracle’s cash flows easier to predict. Its current dividend yield is 1.2%, which is only a 15% payout of earnings. With increased visibility of its cash flows, Oracle might look to boost its dividend.

Microsoft (MSFT)

Microsoft has a net margin that is 26.9%, while its operating margin is 32.8%. Microsoft’s key product is its operating systems, which runs on the majority of PCs worldwide.

Right now, most of Microsoft’s hardware business is PC-focused. But Microsoft has turned its focus toward higher margin cloud services.

Its first step toward this was the launch of Office for iPad. The next step is to grow its presence in the mobile market, hence its purchase of Nokia’s devices and services business. This deal will also give Microsoft a greater presence in emerging markets.

Microsoft’s dividend yield comes in at 2.8%. It has increased its annual dividend payment every year for the last decade.

Qualcomm (QCOM)

This company has a net margin of 26.9% and operating margin of 29.3%. The barriers to entry are high for the semiconductor industry, thanks to the intellectual property and economies of scale that's required.

Unlike Apple, which relies heavily on sales of iPhones, Qualcomm has exposure to the entire smartphone industry. Qualcomm is the major chipset provider to both Apple and Samsung.

The other angle for Qualcomm is growth from faster growing markets, such as China. And other emerging markets are accelerating their shift from 2G to 3G technology.

One of the most appealing aspects of Qualcomm is that it has no debt and pays a 2.1% dividend yield. Its dividend is only a 33% payout of earnings, meaning that the tech company has plenty of cushion to up its dividend in the future.

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