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Technology Stocks From The Bargain Bin

Posted: Oct 23, 2008 13:29 PM by Chris Seabury

Tickers in this Article: AAPL, NTAP, NVDA

Every few years, the markets create situations so compelling that we must take a closer look at them. This is indeed the case today. Since the markets began their broad-based sell-off last year, everything good and bad has been affected.

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Investors have been selling shares of anything at any price, fearing that the economy is heading into a deep recession in the months ahead. This kind of sell-off, while scary, creates situations that we can take advantage of over the long term. The situation in the technology sector has been no different.

Three technology stocks that show up as compelling buys include NVIDIA (Nasdaq:NVDA), NetApp (Nasdaq:NTAP) and Apple (Nasdaq:AAPL). (See Sympathy Sell-Off: An Investor's Guide to learn how to tell if you are actually getting a good company on the cheap.)

NVIDIA Versus NetApp: Who’s The Best?
Both NVIDIA and NetApp have been slammed by the bear market - victims of unwarranted selling. But like the old saying goes, someone’s loss is our gain. Both stocks are now at attractive valuations. NVIDIA is trading at a forward price-earnings ratio of about 8.5, while NetApp is trading at a forward P/E of roughly 8.2. Their balance sheets are in great shape with NVIDIA having $1.6 billion in cash and no debt. NetApp has $2.12 billion in cash and $1.4 billion in debt.

Both companies' share prices are at multi-year lows with NVIDIA hitting at about $6.20 while NetApp touched down to $12.05. These facts tell us that both companies are at good entry points because even though shares could remain volatile, both stocks are being oversold. The great balance sheets and excellent fundamentals give us an opportunity to pick up shares in two strong technology companies for a fraction of the price.

Is This A Good Time To Buy Apple?
Shares of Apple have not been immune to recent waves of selling. Thanks to this selling, we now have shares at a reasonable entry point and valuation. The company is currently trading at a forward P/E ratio of around 15. It has $20.77 billion in cash and no debt. Not long ago, shares hit a 52-week low and bounced off that low. This means the market has unfairly sold off a very strong company on fear.

This creates an opportunity for us to take a long, hard look at and pick up one of the strongest companies out there at a discount. While shares could be volatile, the long term, balance sheet, valuations and stock price represent a great buying opportunity.

Bottom Line
Fear creates many opportunities. The difference is what we do with that fear. When the day comes that the fear is gone, many will look back and say they should have been buying instead of selling. The big question is who do we want to be - the ones who took advantage of these opportunities, or the ones who look back at the decisions they made with regret?

To put together a winning formula for your portfolio, see Value Investing + Relative Strength = Higher Returns.

By Chris Seabury

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