Ten Tech Titans?

Print ArticleEmail Article

George Putnam, editor of The Turnaround Letter, who is known for his value-oriented investment style, has recently shown interest in the Technology sector (usually targeted by growth-biased investors). Putnam’s interest was sparked when news came out that IBM was having talks with Sun Microsystems (JAVA), because he believes IBM is “one of the largest and best managed technology companies.” So when they begin to see value in other companies from their own sector, Putnam believes investors, including himself, would be wise to look for value there as well. After some research, Putnam Identified 10 stocks in the sector that are strongly positioned within their respective business niche, making them potentially rewarding investment ideas. ValueExpectations.com has taken Putnam’s list of companies and put them to the test. We analyzed each company using The Applied Finance Group’s (AFG’s) valuation model to identify which companies look attractive, and which ones do not. Also, using AFG’s corporate performance measurement (Economic Margin), we identified whether each company was in the top or bottom half in regards to expected improvement in economic profitability. As a final layer, we included the implied sales growth for each company to compare against the historical sales growth each has delivered over the past 5 years. Companies with the most realistic expectations for sales growth have proven to be more likely to out-perform than those companies with extremely high expectations. 

Putnam's Top 10 Technology Companies

* JDSU has a target price of $0 and its embedded expectations are significantly unrealistic.

AFG’s Value Expectations allows us to understand the imbedded Sales Growth, EBITDA Margins, and Asset Turnovers a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The table displays the implied future sales growth of companies assuming their EBITDA margins and Asset turnovers stay at the 5 year median levels.