3 tech titans
One of the major trends in the world today is the increasing use of technology, from computers and the internet to smart phones and tablets. These devices and technologies are becoming increasingly ubiquitous in markets around the world.
It makes a lot of sense to invest in companies which have a stake in this high-tech future of ours. Which are the best tech businesses to invest in? Well, here are my three picks.
These days, many people would say that Microsoft is a company in decline. After all, PCs are gradually being replaced by tablets. Plus Microsoft is currently precisely nowhere in the booming smart phone market. Who on earth would buy into this firm?
But take a closer look, and Microsoft is a far more attractive proposition than you'd think. It still dominates the computer industry, with Windows in a leading position in the computer operating system market, and Office virtually monopolizing the business software market. And, don't forget, the Xbox still has a strong position in the games console industry.
Earnings per share has been rising and rising in recent years, with a 30% increase in 2010 and a 28% increase in 2011. Pretty impressive for a company in decline!
What's more, you can expect Microsoft to have an impressive 2012. It doesn't seem that long ago that Windows 7 was released, but in 2012 we can look forward to the launch of Windows 8, which will, for the first time, integrate many of the features of Windows Mobile on a PC operating system. This will give a major boost to computer OS sales.
You might think that computers are in decline, but in fact the number of computers in the world is increasing, going from 1 billion in 2008 to a forecast 2 billion in 2015, driven by explosive growth in emerging markets. Microsoft stands to gain from this.
Plus the launch of Kinect has been incredibly successful, and it won't be long before we see the successor to the now long-in-the-tooth Xbox 360.
That's why I expect to see further increases in earnings per share for Microsoft in 2012 and 2013, and why the shares are a bargain. The business' shares, at the current price of $31.25, trade on a forward P/E ratio of just 11, with a dividend yield of 2.3%.
So computer sales are booming, and as they do the internet is also booming. What is the one company that really stands to benefit from an internet boom? In my mind, it is Google.
These days the words "Google" and "search" are pretty much interchangeable. The scale of this operation is incredible. Google runs over one million servers around the world, and processes over one billion search requests and 24 petabytes of user-generated data every day.
The considerable amount of cash that Google's search operations generate has been used to innovate, and the business now has a strong position in the smart phone market, and is venturing into areas ranging from social networking (with Google+) to driverless cars.
The firm continues to grow, with earnings per share rising 29% in 2010 and 13% in 2011. What's more, I think Google's business has a defendable moat which should ensure its growth for many years to come.
The company, at the current price of $604, is on a very reasonable forward P/E ratio of 14. For me this business is a good bet on the future of the internet.
Apple is truly the phenomenon of our times. The company has managed to combine the latest technology with world-class design and clever marketing in an incredibly impressive way.
The result is a firm which has grown to become the largest in the world by market capitalisation, worth a cool $468 billion. Now usually when a company reaches this size, it grows only slowly, if at all -- after all, elephants don't gallop, do they?
But the remarkable thing about Apple is that the world's largest company remains a growth company. Microsoft and Google may be growing quickly, but Apple is leaving them in the dust. In both 2010 and 2011 it nearly doubled its eps, and another sizeable increase is predicted for 2012. The current price of $502 puts the business on a forward P/E multiple of just 11.
Of course, much of the business' success is down to the temperamental genius that was Steve Jobs. But even after Jobs, the company has considerable momentum, as well as more stunning new products in preparation -- in 2012 we can look forward to the iPad 3 and perhaps the iPhone 5. That suggests Apple is still some way away from its peak.