As Internet stocks break down, old tech seems valuable

While the likes of Netflix and TripAdvisor have lost more than 20 per cent of their market value, putting them in bear market territory.

By: Reuters | New York | Published: April 13, 2014 2:28 am

THE last six weeks have been terrible for many technology shares, but not for the four horsemen that sat atop the last tech boom.

Intel, Oracle, Microsoft and Cisco, known as the four horsemen during the late 1990s technology boom due to their strong performance and leading market share, have all rallied since the beginning of March even as stocks of many other tech companies have been crushed.

These legacy names have emerged as an alternative for those who want exposure to the tech sector but are spooked by the  slump in high-growth stocks like Netflix.

These older names have recently attracted more attention because their growth outpaces the broader market but they don’t have the high valuations of the recent momentum favourites. “They have high cash levels, nice profit margins, and when the economy returns, their cyclicality will be a positive,” said Robert Stimpson, portfolio manager at Oak Associates in Akron, Ohio.

While the likes of Netflix and TripAdvisor have lost more than 20 per cent of their market value, putting them in bear market territory, Dow components Intel Corp and Cisco Systems are up 5.7 per cent and 3 per cent, respectively, since the beginning of March. Microsoft Corp  is up 2.3 per cent over that time and is trading near its highest levels since the dot-com bubble.

These stocks are considered undervalued by various measures, including StarMine’s measurement of intrinsic value, which looks at anticipated growth over the next decade. Many of the high-flyers still look pricey, meanwhile.

Both Netflix and Facebook would still be above StarMine’s intrinsic value measure even if their shares fell another 50 per cent from current levels. However, IBM is almost 40 per cent under its intrinsic value, based on its Friday closing price, while Microsoft and Oracle are more than 20 per cent under.

Straddling the line between growth and value is Apple Inc , Wall Street’s most valuable company. While the stock is trading well under its intrinsic value, it is well below record levels hit in 2012, suggesting investors remain skeptical that its shares have the ability to recover.

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