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Over the past couple weeks the tech-heavy NASDAQ Composite has fallen twice as much as the S&P 500. Investors aren’t used to this type of movement. Top tech stocks generally outperform the broader market. The NASDAQ has outperformed the S&P 500 for the majority of the last ten years.
So, does this mean a bursting of a tech bubble is on the horizon? Or are investors trading in certain tech stocks for safer investments?
The S&P 500 hit a record high earlier this year. And there has been a lot of excitement surrounding momentum stocks, notably those in the social network and cloud computing space. The valuations of Twitter (NASDAQ:TWTR) and salesforce.com (NASDAQ:CRM) are sky high based on a number of metrics. Even Facebook (NASDAQ:FB) and LinkedIn (NASDAQ:LNKD), both of which actually generate earnings, are very expensive.
And all four of these high-profile tech stocks are down 10% over the last month. There could be even more pressure to come if the tech market is unable to create an appetite for the upcoming tech IPOs.
Eight of the top 10 IPOs for 2014 are heavily tied to the technology field in one way or another. But there has already been signs that the IPO market might be overheating. The high profile IPO of King Digital (NASDAQ:KING), parent company of Candy Crush Saga, underperformed market expectations in its market debut.
So when is the tech bubble going to pop?
The NASDAQ 100 Composite’s P/E is right at 21. That’s still below the 25 to 35 P/E range we saw for the years between 2004 and 2008. And it’s also well below the near 100 P/E ratio that we saw during the dot-com era.
Thus, there’s likely no bubble to be popped. But we do appear to be in a rotation from momentum tech stocks to tried-and-true tech names.
For investors that are interested in maintaining exposure to the tech industry, the best strategy is using tech names that offer a solid dividend.
3 Top Tech Stocks To Own Buy For The Dip
While investors have been dumping the new tech names, they’ve been flocking to old tech. The top three tech stocks outlined below are each up over 10% during the past month. Which comes at a time when the major tech momentum names were down. But what’s more noticeable is that they all offer a dividend yield of 2.5% or more. That’s pretty impressive considering the average dividend yield for the NASDAQ 100 is 1.4%.
Microsoft Corporation (NASDAQ: MSFT)
Wall Street has considered Microsoft a stagnant tech company for a number of years. However, the company might be changing investors’ minds. It has brought in a new CEO to give the company a makeover, and hopefully pivot it toward the faster growing cloud computing space. And it just so happens that the new CEO, Satya Nadella, ran Microsoft’s cloud services division before taking over for former CEO Steve Ballmer.
After just a few weeks on the job, Nadella announced the launch of Office for iPad. This looks to be one of the first steps to transforming the company into a growth story. Microsoft still pays a solid dividend yield of 2.9%. Its dividend payout is only 36%.
Intel Corporation (NASDAQ: INTC)
While concerns over declining PC sales have palgued Intel, it still has plenty of exposure to the fast growing server market. The server market is driven by business spending and business customers tend to have larger budgets. Another key opportunity in Intel’s server business is that it can capture opportunities in the server market from customers that are looking to move their business to the cloud.
Intel has yet to tap the smartphone market. It lags its major peer, Qualcomm (NASDAQ:QCOM), in the space. But that doesn’t mean that Intel isn’t looking to tap into this very large market. It is currently developing a new suite of modem products that is expected to be used in various smartphones and tablets. Intel is also expected to attack the wearable tech market. As far as its dividend goes, Intel has been paying a dividend since 1992. Its current yield is over 3.3%.
Cisco Systems (NASDAQ: CSCO)
Cisco has managed to grow operating income at an annualized 9% over the last decade. It’s also the number one player in the networking space, owning the top spot in market share across various segments. These include the routing, WLAN and Ethernet switching, and data center segments. Despite having a strong position in the networking market, Cisco also has opportunities in the faster growing “Internet of Things” market. Along those lines, Cisco will be a frontrunner for connecting everything to a single network. Which includes the likes of sensor equipped shopping carts and parking spaces.
Cisco just started paying a dividend back in 2011, and since then it’s upped its annual dividend payment nearly three-fold. Its strong balance sheet can easily support further growth in its dividend payout. The tech company has net cash that covers 25% of its market cap.
*****
Many investors own new and exciting tech stocks on the belief that they will generate substantial earnings at some point in the future. But in a market correction, investors quickly grow fearful of the future. They flock to companies that have a strong record for growing earnings.
Microsoft, Intel and Cisco all have solid track records of growing earnings. They are also all three market leaders in their respective fields. And while the valuations might be sky high for some of the top tech companies, they are more than reasonable for these three top tech stocks. All trade at P/E ratios below 15. The technology sector as a whole trades with a P/E that’s close to 24. For investors looking to protect themselves during this market dip, while maintaining exposure to the tech industry, any of the three stocks above are solid choices.
The One Stock to Own in 2014 — The Year Mobile Takes Over
On Dec. 31, something incredible happened. For the first time in history, the majority of Internet traffic originated from NOT from PCs or desktops — but from mobile devices including smartphones and tablets. We’re never going back. Mobile is taking over. And even though the biggest player in mobile, Apple, is selling over 200 million iPhones this year alone… here at Wyatt Research, we’re recommending the one company no one is taking about. The one reaping massive profits each time a new Apple or Samsung smartphone is activated. In fact, as mobile data usage explodes in the year ahead, its stock is set to soar! Shares are already on the move. So, before this stock moves any higher, read our latest report for all the details: Click here for the full story.