Hot on the heels of the December 21, 2012 launch of the Popular Logistics Virtual Portfolio in Sustainable Energy, here, up 22.36%, I am announcing the launch of the Popular Logistics Virtual Portfolio in Information Technology. Roughly $1.0 million in Apple, Google, HP, IBM, Intel, Microsoft, and Oracle.(Their investor relations pages are Apple, Google, HP, IBM, Intel, Microsoft, and Oracle.)
|Tech Virtual Portfolio|
|Table 1. Acquisitions, Start of Business, 2/22/13|
Generally speaking, here’s what I expect:
- Apple, IBM: I expect to significantly outperform the Dow Jones and S&P 500.
- Google: I expect to perform in line with the Dow Jones and S&P.
- HP: An investment in HP is speculative. Whitman may turn the company around. The stock might wildly outperform the Dow & the S&P. As Gerstner might say, however, it’s hard to teach an elephant to dance. The stock may plummet.
- Intel, Oracle, I don’t know enough to have an expectation.
- Microsoft may become a leading indicator of the economy. Thus, if the S&P does well, Microsoft may do better.
These are in table 2, below
|Tech Virtual Portfolio – Forecasts for Year End
|Item||Stock||Price 2/15||Forecast||Alt Forecast|
|Table 2. Expectations, 12/31/13|
Apple, as I wrote here, seems to me to be undervalued. Google, it seems to me is overvalued, at least compared to Apple. So if I was investing real money, whether my own or my clients, I would invest more in Apple than Google. HP, writing off $Billions of losses from the recent acquisition of Automy, will either go out of business or rebound. Given Apple’s PE, Debt to Asset, and Return on Average Asset, see tables 3 & 4, below, I think an investment in Apple is a “Value Investment.” The company has room to grow. There is a significant margin of safety in the stock price. The only problem with Apple is investor sentiment; the irrationality of “Mr. Market.”
These companies leverage information technology in different market spaces. Most are based in Silicon Valley.
Apple designs and sells computer based consumer electronics including smart phones, tablets, personal computers and music players. Apple also designs the system and user interface software for these devices. And, via their various online stores, sells applications and content.
Google started out as a search company. They also write operating system software for smart-phones, tablets, and internet workstations. It seems to me that Google is more like a mid-20th century American television or radio network – they provide advertisers with eyeballs.
HP. Founded by Bill Hewlett and Dave Packard in 1939, HP’s first product was an audio oscillator used by sound engineers. One of HP’s first customers was Walt Disney Studios, which purchased eight oscillators to develop and test an innovative sound system for the movie Fantasia. Profiled as a visionary company by Collins and Porras in Built to Last, HP has stumbled, and has yet to recover.While HP continues to make world class printing and imaging systems, the company has lost $25 to $30 billion on the acquisitions of Compaq by Carly Fiorina, EDS and Palm by Mark Hurd, and Autonomy by Leo Apotheker. As noted in my prediction for 2013, here, CEO Meg Whitman may turn the company around, if the Board allows her. Note to Ms. Whitman: Call me if you want my help.
IBM. Once synonymous with computers, IBM, also profiled by Collins and Porras in Built to Last, stumbled and recovered. To paraphrase the Lou Gerstner, the guy who turned IBM around, “the elephant learned to dance.”
Intel, co-founded by Gordon Moore, grew like Apple from Job’s return to 9/12, and like Microsoft from 1986 to 1999. These companies, and the valley, developed exponentially, as Moore, with what is now known as “Moore’s Law,” predicted memory chips would developed. Intel Corporation designs and manufactures integrated digital technology platforms. A platform consists of a microprocessor and chipset. These platforms are used in a range of applications, such as personal computers, data centers, tablets, smartphones, automobiles, automated factory systems and medical devices. Throughout 2012 Intel acquired the product lines and certain assets associated with its InfiniBand business from QLogic Corp (February) the interconnect hardware development program and related intellectual property from Cray Inc. (May) and I around 1,700 patents and patent applications from InterDigital (September).
Microsoft, a software company, also makes games and is trying to enter the smart-phone software, tablet software space, and direct retail spaces. They have the cash to make this work. Their server software, Exchange, SQL, Active Directory, HyperV, Sharepoint are strong. Windows 8, is fast and offers the same interface on phones, tablets and computers. It’s drawback is that it is very different from Windows XP and Windows 7. Some corporate users will upgrade from XP to Windows 7 and move to 8 for tablets. Sales professionals will move to Windows 8 on touchpad laptops. There is a lot of pent up demand for new computers – desktops, laptops and servers. Even when companies migrate into “The Cloud” they are storing data on servers somewhere and many of those servers run software from Microsoft.
Oracle, also a software and services company, has operating system and productivity software, and Java, as well as hardware and storage systems due to the acquisition of Sun Microsystems.
Basic Financial Data and Critical Financial Ratios, as of 2/15/13, are in Tables 3 and 4.
|Basic Financial Data|
|Table 3: Basic Data, 2/15/13|
|Critical Financial Ratios|
|Item||Stock||P/E||Debt to A||RoAA|
|Table 4: Ratios, 2/15/13|
Note that the Sustainable Energy portfolio I defined on 12/21/12 is up 22.36%, from $8.0 Million to $9.79 Million. The Unsustainable Energy Reference Portfolio – in which I would not have in invested – is up 3.30%, from $8.0 Million to $8.24 Million. These are Cree, First Solar, GT Advanced Tech, Lighting Sciences, Next Era Energy, Sunpower, Solazyme, and Vestas, and BP, Chevron Texaco, Conoco Phillips, Exxon, Shell, Haliburton, Transocean, and Peabody Coal.
While I might be good at it, I am not a licensed stock broker, investment adviser, financial planner, or money manager. That, however, is simply a matter of taking, and passing, the Series 7 exam. If I was managing a real fund I would not allocate funds in precisely equal amounts. I am doing so here because it is purely an academic exercise.