Traditionally, there’s been a big split within the investing community between investors who focus on fast-growing companies and those who prefer to concentrate on finding cheap stocks. Often, high-growth companies come with expensive share prices, while the better bargains come from beaten-down companies without big growth prospects.
But recently, the line between growth stocks and value stocks has gotten a lot blurrier. Many well-known companies that have clearly belonged to the high-growth category for years — or even decades — now find themselves in the unfamiliar position of being considered as top picks by value-oriented investors.
Let’s take a look at some of these stocks to see if they’ve really changed their spots.
Apple (AAPL), the company that made the home-computing market friendly in the 1980s has been a pioneer in many consumer trends over the years, whether you look at the graphical user interface pioneered by its Macintosh computers, its iPod music and media players, or, most recently its iPhone and iPad mobile devices. Yet the fierce level of competition in the smartphone and tablet businesses has raised questions about Apple’s ability to maintain its huge profit margins and fast-paced growth, especially after the death of Steve Jobs removed the company’s key creative mind and led to some significant changes in the way Apple is run.
Apple shares have lost a third of their value in the past five months, so investors can buy stock for less than 10 times estimates of fiscal 2014 earnings — and that doesn’t even account for the roughly $137 billion in cash and short-term investments the company has on its balance sheet. A dividend yield of more than 2 percent is just icing on the cake.
If Apple made the computer fun, Microsoft (MSFT) made it productive, at least from a business standpoint. The company still thrives on its Windows operating system and Office suite of word processing, spreadsheet and presentation software, with the two segments responsible for nearly all of Microsoft’s profits. But the rise of mobile devices has led to decreased demand for full-blown PCs, and that in turn has raised concerns about where Microsoft’s future growth will come from, especially as the recent launch of the Windows 8 operating system has gone more slowly than hoped.
Still, after a strong opening weekend for the company’s new Surface Pro tablet, Microsoft may finally be turning the corner — and with the stock trading at less than 10 times current fiscal year earnings estimates and paying a better than 3 percent yield, the shares look like a good value as well.
Hewlett-Packard (HPQ) has benefited from the technology revolution for decades. But the company best-known best for its printers and other computer peripherals also became a leader in producing full-blown computer systems, riding the wave of PC adoption to new heights in the tech boom of the late 1990s and enjoying strong rebounds even after subsequent bear markets knocked technology from its lofty heights.
More recently, though, HP has muddled along with a long line of short-tenured chief executives, and current CEO Meg Whitman has struggled to find a path to lead the company away from dependence on the declining PC and peripherals market and toward higher-growth areas like enterprise IT services.
After losing nearly half their value in 2012, shares have rebounded somewhat this year but offer a 3 percent yield still trade at less than five times current-year earnings estimates, presenting a huge bargain for those willing to gamble that HP can become a turnaround story.
Like Microsoft and HP, Intel (INTC) has suffered from the declining PC market. The predominant maker of microprocessors for PCs didn’t adjust as quickly as some of its smaller competitors to the rapid shift of the market toward mobile devices. As a result, the stock has underperformed and trades at a trailing price-to-earnings ratio of less than 10.
The company hopes that its Ultrabook line of laptops as well as its soon-to-arrive mobile-chip offerings will help it regain some of its lost ground. In the meantime, investors can take advantage of a better than 4 percent dividend yield while they wait.
Just because stocks trade at low earnings multiples doesn’t mean that they’re automatically smart buys. But if you think that these companies can recover even part of their former growth glory, then they definitely deserve a closer look at current prices.
Motley Fool contributor Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. Try any of our newsletter services free for 30 days.