There’s Strength In Tech Stocks

NCMs Lyons says some stocks in the sector are practically on sale

earnings growth to 20% for the next three to five years, according to Lyons.

That said, it’s no surprise that Lyons is keen on Compaq Computer (NYSE: CPQ), which as of this writing was selling at 19 times projected 1998 earnings, yet was on track for 20% average annual earnings growth. “Right now, 25% of the company’s business is in Europe, which bodes well,” says Lyons. Another plus, he says, is Compaq’s acquisition of Tandem, a client server company. “That segment of the market is growing 42% annually, 71% in the U.S. alone.”

The outlook is also good for IBM (NYSE: IBM), says Lyons. “Big Blue” is cheap, too, selling at a 16 P/E multiple, yet projected to grow earnings at 15%-16% annually. “IBM used to be just mainframes, but now they’re a tech conglomerate with a presence in semiconductors, mainframes, PCs and software,” says Lyons. Another boon, he says, is the company’s services unit, essentially a consulting firm under the IBM roof, which is growing revenues at 20% or more a year and has a 10-year backlog of orders totaling $33 billion.

Server maker Sun Microsystems (Nasdaq: SUNW) looks cheap at a share price 17 times projected 1998 earnings, but Lyons thinks that’s quite a deal, especially with average annual earnings growth of 18% foreseen for the next five years. Sun’s servers have won over clients in the financial sector that depend on the highest quality. Additionally, Sun reaps royalties from the use of Java, the company’s software that’s a rave with Internet programmers.

Making the boxes that computers are encased in may seem relatively staid in the tech industry, but Lyons thinks it’s a gold mine for SCI Systems (NYSE: SCI), which as of this writing was selling at a P/E of 23 times estimated 1998 earnings. “Manufacturers like Compaq and Dell are outsourcing more, which should keep SCI’s earnings growth in the 25% range,” he says.

Don’t count out software. Lyons says Symantec (Nasdaq: SYMC), the maker of the Norton line of anti-virus software, is in line to reap handsome profits as PC owners move to protect their computers. “A good number of viruses come from the Net, which is spurring 50% revenue growth for the anti-virus market.” Symantec, which is selling at 19 times estimated 1998 earnings, is projected to grow at a 25% clip. Symantec, Lyons says, also stands to benefit from its PCAnywhere software, which allows computer users to access their hard drives globally from a phone line.

James A. Anderson

Lyons says these techies are not only cheap, they’re set to grow earnings 10%-30%.

Company Exchange: Symbol Stock Price * P/E Est. 5-Year
Compaq Computer NYSE: CPQ $56.00 19 0.209%
IBM NYSE IBM 100.13 16 10.6
Sun Microsystems NASDAQ: SUNW 40.81 17 18.3
SCI Systems NYSE: SCI 38.13 23 22.6
Symantec NASDAQ: SYMC 20.88 19 28.3
* As of 1/12/98; **Source: Zacks Investment Research Inc.
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