The nine-year-old bull market has evolved into a choppy market in 2018. Many investors feel that the current valuations are stretched, and some investors feel that the valuations may be unsustainable based on the news flow and valuations ahead. When investors start considering how to value a company and its stock, one of the most classic methods is the price-to-earnings (P/E) ratio. This is just one tool for investors, and it often fails to tell the whole story.
24/7 Wall St. has looked at numerous market sectors to outline where investors may find value in an expensive stock market. While Amazon and Netflix consistently may be valued at more than 100 times earnings, the overall S&P 500 Index and the Dow Jones industrial average are both valued at about 23 times trailing earnings. Those valuations for the coming 12 months and they come with a forward current year P/E of about 16.5 for the Dow and 17.6 for the S&P.
Investors often look for value after periods of big expansion, and it is no secret that growth stocks have by and large outperformed value stocks in recent years. The reason is simple: investors are enthralled growth, and the market’s continued rise just is not the right climate for slower earnings growth (or no growth). If the stock market begins to falter, many investors may prefer to focus on value stocks over the great growth names, now that Netflix, Facebook, Twitter and many other technology leaders have destroyed shareholder valuations in recent weeks.
We have focused our efforts in the technology sector, which also includes the slow-growth/no-growth telecom and IT-services components rather than just software and hardware companies within technology. There were eight companies valued close to or under 10 times expected current year earnings, and none of these companies are small-cap when it comes to their market valuations. A dividend comparison has been made on each, and the relative average dividend yields are almost 2.2% for the Dow and 1.8% for the S&P 500.
Here are eight large-cap and mid-cap technology stocks trading at or under 10 times expected earnings.
AT&T Inc. (NYSE: T) is a well-known telecom and wireless behemoth, but it has been changing its stripes with the acquisition of DirecTV and the more recent purchase of Time Warner. AT&T is valued at about 11 times last year’s earnings, and it is valued at just nine times expected earnings for this year. Its stock performance has suffered, and its 6.3% dividend rarely gets the attention it may deserve for value investors. AT&T has a $233 billion market cap.
DXC Technology Co. (NYSE: DXC) may not be a household name as the company was formed on April 1, 2017. This is the combined entity from the merger of CSC and the Enterprise Services business of Hewlett Packard Enterprise. The company provides IT-services in the United States and abroad, a segment that investors view as old-school and low-value when there are other growth opportunities. That said, its $8 per share in earnings power is expected to be $9 within two years. The current value is barely 10 times expected current-year earnings. DXC’s dividend yield is close to 0.9%, and it has nearly a $25 billion market cap.