The stock market as a whole is overvalued. The current S&P 500 PE ratio is above 28. And at that high level – with history as a guide – we could expect the stock market to return roughly 0% over the next decade. Although, I did point out that record low interest rates might justify these higher stock prices.
Either way – as a value investor – I don’t make investments based on the macro level. Instead, I’m always searching for the best individual opportunities. And right now, two tech stocks are at the top of my buy list… shares of both Intel and Cisco.
I’ve already shown my subscribers a detailed look at why Intel has made the cut. But this is the first time I’m sharing some Cisco research. I’ll go ahead and do a quick recap on Intel and then dive into Cisco.
Top Tech Stocks for Value Investors
Intel has been losing ground to AMD. Although, it still has a massive market share lead in many segments and is better diversified. It also has huge consistent cashflows to continue innovating and rewarding shareholders.
Short-term pressure will persist but I have no doubt Intel will do well over the coming decades. One benefit of the short-term pessimism is a better buying opportunity. Intel stock is close to 30% off of its 52-week high. And here’s one of five Intel charts I’ve shared…
You can see Intel has bought back over a billion shares outstanding over the last 10 years. And buybacks make more sense when shares trade at lower levels. Intel also continues to pay a bigger dividend. The payout also looks very safe and that’s a big win in my book.
If Intel shares drop a bit more over the coming weeks, I might invest close to 10% of my total savings into the company. Feel free to check out my more detailed Intel stock research.
Cisco Stock Analysis
Cisco has caught my eye for similar reasons. Investors have beaten down this tech stock. Its shares are close to 25% off their 52-week high… but the company should push higher over the long-term.
Cisco is the world’s largest hardware and software provider for networking solutions. As the IoT expands, so will Cisco. The company also focuses on cybersecurity. It’s the world’s largest network security company and that’s a great place to invest. Cyber threats and security continue to coevolve. So, money will keep on flowing.
Now, as you can see in this 10-year chart, there hasn’t been much revenue growth…
Although, the company is transitioning to a subscription-based model. And this new model should be more profitable. That’s why investors often use higher valuation multiples for subscription-based companies.
Over the last 10 years, the operating income margin has climbed from 18% to 28%. So, although revenue growth isn’t huge, the company is becoming more profitable.
Like all companies, Cisco has been negatively impacted by the global shutdown. Although, due to the industry it’s in, it’s likely to be a net benefit. More people are connecting online. For example, Cisco has a Webex video platform – a Zoom competitor – that had 324 million attendees in March of 2020.
Cisco has a well-established ecosystem and continues to expand. This stability has also helped the company increase its dividend…
With the lower share price, the dividend yield has climbed to 3.7%. And in a low interest rate world, that’s great for a safe company. If it takes a few years for investors to give the company a higher valuation multiple, I’ll be getting paid while I wait. The company has also been aggressively been buying back shares.
These are just some highlights from my Cisco research. Overall, the risk-to-reward is looking pretty solid. I might soon put close to 10% of my total savings into the company.
Unlike some of the bigger tech stocks in 2020, the two I’ve covered today look like better value opportunities. What are your thoughts on these companies? Have you invested or do you plan to? Please drop a comment down below.