5 Tech Sector Bargains to Buy in 2013
It's especially true in the technology sector, a group that got hammered in 2012 while other stocks were rallying hard. While the S&P 500 ended 2012 up more than 13%, the tech sector finished its year just 4.9% higher. And not all names have even fared that well -- in fact, some surprising tech names are looking like bargains now that the calendar has flipped over to 2013.
That's presenting a big opportunity for investors willing to put on their buying hats this month.
With technicals for the tech sector starting to show overall strength again, this bargain bin is comprised of the other half of the coin -- fundamental valuation metrics that come in cheaper than their sector averages. In particular, we're focusing on firms who are earning more profits, bigger cash flows, and sport better book values than the tech sector average.
It may seem surprising that Yahoo! (YHOO) makes our list of bargain tech stocks -- after all, the search giant has made a series of conspicuous missteps in the last year, from a resume-padding CEO ouster to wrestling with activist shareholders. But that drama is exactly what's helped to give Yahoo! a discounted valuation right now.
Yahoo! faces extremely stiff competition in grabbing web-browsing eyes online. With rivals like Google (GOOG) , Microsoft (MSFT) , and Facebook (FB) each threatening a part of Yahoo!'s strategy, many investors have been ignoring the once dominant search site. But that's a big mistake. Yahoo! is still one of the biggest destinations on the internet, and its brand looks more than capable of returning value to shareholders in 2013 with new management and plenty of cash in its coffers. The firm's snagging of ex-Googler Marissa Mayer as CEO should be seen as a major coup for the Sunnyvale, California-based firm -- Mayer was a key part of Google's success, and she has the experience to bring a more focused approach to Yahoo! as well.
Financially, Yahoo! is in stellar shape, with more than $8.4 billion in cash on its balance sheet, and a pretty insignificant $38 million in debt. That huge cash load accounts for around 35% of Yahoo!'s market capitalization right now, providing a material discount to shares. In one of her first acts as CEO, Mayer announced that the firm wouldn't be pursuing a big acquisition strategy, preferring instead to make smaller acquisitions and return cash to shareholders. That's a relief given the horrific track record tech firms have had with acquisitions in the last several years.