Bulletin
Investor Alert
Philip van Doorn

Deep Dive Archives | Email alerts

March 13, 2021, 9:12 a.m. EST

Don’t be fooled by the ‘value’ tag on these tech stocks. Many can provide plenty of growth too

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Dow Jones Industrial Average (DJIA)
  • X
    NASDAQ Composite Index (COMP)
  • X
    Russell 1000 Index (RUI)

or Cancel Already have a watchlist? Log In

By Philip van Doorn

With another round of federal stimulus on the way and expectations for solid growth for the U.S. economy this year, value stocks have been rallying. Stocks with low valuations tend to do well during economic growth phases.

Mark DeCambre underlined the value rally by pointing out that the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.30% ended at a record high Dec. 10, while the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -2.72% was still in a correction.

But what about tech stocks? There’s plenty of value there too, as you can see in the screen below.

Economists polled by MarketWatc h expect the U.S. economy to expand by 6% in 2021. Yes, that’s coming off a 3.5% contraction in 2020, according to the latest estimate from the Bureau of Economic Analysis. But the 2021 growth rate would be the fastest since 1984, according to World Bank data.

Read: Here’s what the 2016 value rally says about how far the current advance can go

Tech value stock screen

There are several definitions of value stocks, but generally they are those that trade at lower valuations to earnings and typically grow their sales at a slower pace. That said, an individual value stock might also be considered a growth stock. This is illustrated by the Russell indexes.

The Russell 1000 Index /zigman2/quotes/210598144/delayed RUI -1.95% is made up of the 1,000 largest publicly traded U.S. companies by market capitalization and is reconstituted each year in June. Selected from the Russell 1000 are the Russell 1000 Value Index /zigman2/quotes/210598148/delayed RLV -1.36% , which has 849 stocks, and the Russell 1000 Growth Index /zigman2/quotes/210598136/delayed RLG -2.52% , which has 453 stocks. The groups overlap, with 291 stocks in both. You can read how FTSE Russell describes the makeup of its indexes here .

So an easy way to play value at this time is to buy shares of an exchange traded fund that tracks the Russell 1000 Value Index /zigman2/quotes/210598148/delayed RLV -1.36% , such as the iShares Russell 1000 Value ETF /zigman2/quotes/206232959/composite IWD -1.40% or the Vanguard Russell 1000 Value ETF /zigman2/quotes/206196793/composite VONV -1.39% . As always, do your own research on any investment you consider to make an informed decisions.

For a large-cap technology value screen, we started with the information technology sector of the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -1.89% . Here’s how this sector’s weighted aggregate forward price-to-earnings ratio has increased over the past five years:

The sector’s forward P/E his risen to 25.4.

This doesn’t mean “expensive” tech stocks can’t be excellent investments. Salesforce.com /zigman2/quotes/200515854/composite CRM -1.93% was trading at a forward P/E of 68.7 five years ago, and the stock has nearly tripled since then.

Getting back to the S&P 500 tech value screen, we then added tech-oriented stocks in the communications services sector, including videogame developers and Facebook Inc. /zigman2/quotes/205064656/composite FB -4.23% , Alphabet Inc. /zigman2/quotes/205453964/composite GOOG -2.56% , Netflix Inc. /zigman2/quotes/202353025/composite NFLX -21.79% and Twitter Inc. /zigman2/quotes/203180645/composite TWTR -6.60% . That brought the list up to 82 stocks. Two of the videogame developers made the cut, but among the four companies named above, only Facebook had a low enough P/E to pass the screen.

Here are the 43 S&P 500 tech companies that trade below the tech sector’s forward P/E of 25.4:

Scroll the table to see all the data, including sales growth estimates and dividend yields.

A note about the data: The operating margin and sales growth figures for 2020 are marked “estimated” because many companies have fiscal years that don’t match the calendar. So the figures are based on consensus estimates for calendar 2020 among analyst polled by FactSet. For Micron Technology Inc. /zigman2/quotes/205710729/composite MU -3.69% , the 2020 sales growth figure is for the past four reported fiscal quarters through Dec. 3.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
34,265.37
-450.02 -1.30%
Volume: 523.88M
Jan. 21, 2022 4:52p
loading...
/zigman2/quotes/210598365/realtime
US : Nasdaq
13,768.92
-385.10 -2.72%
Volume: 5.01M
Jan. 21, 2022 5:16p
loading...
/zigman2/quotes/210598144/delayed
US : US Composite
2,427.56
-48.30 -1.95%
Volume: 4.72M
Jan. 21, 2022 6:32p
loading...
/zigman2/quotes/210598148/delayed
US : FTSE Russell
1,593.91
-21.98 -1.36%
Volume: 3.46M
Jan. 21, 2022 6:32p
loading...
/zigman2/quotes/210598136/delayed
US : US Composite
2,697.58
-69.75 -2.52%
Volume: 2.30M
Jan. 21, 2022 6:32p
loading...
/zigman2/quotes/210598148/delayed
US : FTSE Russell
1,593.91
-21.98 -1.36%
Volume: 3.46M
Jan. 21, 2022 6:32p
loading...
/zigman2/quotes/206232959/composite
US : U.S.: NYSE Arca
$ 161.73
-2.29 -1.40%
Volume: 9.69M
Jan. 21, 2022 4:00p
loading...
/zigman2/quotes/206196793/composite
US : U.S.: Nasdaq
$ 70.94
-1.00 -1.39%
Volume: 925,149
Jan. 21, 2022 4:00p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,397.94
-84.79 -1.89%
Volume: 3.20B
Jan. 21, 2022 4:52p
loading...
/zigman2/quotes/200515854/composite
US : U.S.: NYSE
$ 218.63
-4.31 -1.93%
Volume: 9.13M
Jan. 21, 2022 4:00p
P/E Ratio
120.52
Dividend Yield
N/A
Market Cap
$219.60 billion
Rev. per Employee
$441,349
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 303.17
-13.39 -4.23%
Volume: 28.71M
Jan. 21, 2022 4:00p
P/E Ratio
21.65
Dividend Yield
N/A
Market Cap
$880.59 billion
Rev. per Employee
$1.92M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 2,601.84
-68.29 -2.56%
Volume: 2.10M
Jan. 21, 2022 4:00p
P/E Ratio
25.06
Dividend Yield
N/A
Market Cap
$1728.80 billion
Rev. per Employee
$1.77M
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 397.50
-110.75 -21.79%
Volume: 58.90M
Jan. 21, 2022 4:00p
P/E Ratio
35.38
Dividend Yield
N/A
Market Cap
$225.13 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/203180645/composite
US : U.S.: NYSE
$ 34.82
-2.46 -6.60%
Volume: 25.67M
Jan. 21, 2022 4:02p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$29.81 billion
Rev. per Employee
$675,700
loading...
/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 81.93
-3.14 -3.69%
Volume: 29.72M
Jan. 21, 2022 4:00p
P/E Ratio
12.66
Dividend Yield
0.49%
Market Cap
$95.26 billion
Rev. per Employee
$688,814
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.