2 Buy-Worthy Tech Bargains

12/06/2012 10:45 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

This pair of stocks tell both side the tech story—a sector up-and-comer on the growth path and and industry titan transitioning for the future observes Richard Moroney of Dow Theory Forecasts.

We are initiating coverage of Mylan Laboratories (MYL), a maker of generic drugs, as a Buy and Long-Term Buy. The stock has a lot to like, including improving cash flow and profit margins, strong profit momentum with positive earnings revisions, and solid Quadrix scores.

Mylan boasts a portfolio of more than 1,100 generic drugs, as well as several branded medications. In addition, a subsidiary is one of the world’s largest makers of drug ingredients.

Shares have returned 21% this year, but still seem unduly cheap considering the company’s growth outlook. For 2012, rising analyst estimates target per-share earnings of $2.58, implying 26% growth. For 2013, the consensus is $2.77, up 7%.

Yet shares look undervalued at ten times trailing earnings—a 46% discount to the three-year average. Helped by a Quadrix Value score of 70, the stock’s Overall score is 93.

Meanwhile, Intel (INTC) CEO Paul Otellini, age 62, said he will retire in May.

Given Intel’s mandatory retirement age of 65, the announcement caught investors by surprise. The new CEO must help Intel navigate the mobile-device market—an elusive goal under Otellini, who has led the company since 2005.

Until this year, Intel’s semiconductors had the reputation of battery hogs. While Intel has placed its newer semiconductors in smartphones in recent months, its customers are primarily smaller manufacturers.

Sales of Ultrabooks—sleek notebook personal computers that were a major Intel initiative going into the year—have failed to ignite much consumer enthusiasm. Intel hopes the trend changes in 2013, when a new processor makes the devices lighter and gives them longer battery lives.

The retirement news sent Intel shares to a 14-month low. But plenty of pessimism appears baked into the stock, which trades at eight times trailing earnings, 43% below the five-year average.Intel is a Long-Term Buy.

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