A Prudent Trio in Technology

05/02/2016 8:00 am EST

Focus: STOCKS

Chris Quigley

Contributing Editor, The Prudent Speculator

Chris Quigley, contributing editor to The Prudent Speculator — an industry-leading newsletter with a long-term value investing focus — looks at some of the firm's top tech sector positions following their latest quarterly earnings.

International Business Machines (IBM)

IBM posted earnings per share of $2.35, versus the $2.09 estimate in the 1st quarter of 2016. IBM had sales of $18.7 billion, versus the $18.3 billion estimate.

While we understand the market's worries, particularly the currency headwinds, we like that that IBM has divested non-core operations and that the company continues to see strong growth from many of its newer segments.

IBM trades for under 11 times forward earnings per share, while the company has $4.7 billion remaining on the current share repurchase plan.

With the yield now up to 3.5%, we continue to find IBM to be quite undervalued, though our target price has been pared to $190.

Intel (INTC)

Semiconductor giant Intel reported earnings per share of $0.54, versus the $0.49 estimate in the 1st quarter of 2016.

We have little doubt that Intel's core business needs to evolve amid a weaker-than-expected recovery in PC sales and massive growth in the Internet of Things group.

As Intel moves away from tick-tock processor changes and has reached a point where physics makes it nearly impossible to keep pace with Moore's Law, we believe the company's restructuring should be welcomed.

We like that Intel has a diversified revenue stream, low levels of debt and a 3.3% dividend yield. We have left our target price unchanged at $40.

Microsoft (MSFT)

Computing giant Microsoft reported earnings per share of $0.62, versus the $0.64 estimate in the 3rd fiscal quarter of 2016.

In the wake of the bottom-line miss and soft guidance for revenue in the current quarter, we have trimmed our target price by a buck to $60,

However, we continue to like the great number of platforms that are integrated into Azure, MSFT's cloud computing platform, and are pleased that cloud revenue continues on its impressive growth trajectory.

We also like the solid dividend yield near 2.8% and the terrific balance sheet, so we expect to continue to hold this high-quality name for a while longer.

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By Chris Quigley, Contributing Editor to The Prudent Speculator

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