The 20 Best Values in Tech Hardware

Before you go, we thought you'd like these...
Before you go close icon

Study after study has shown that stocks with low price-to-earnings multiples significantly outperform high-P/E stocks. Research from my favorite investing guru, New York University Prof. Aswath Damodaran, pegged the outperformance at anywhere from 9%-12% per year, depending on the study period. That's big money we're talking about.

But you already know that you can't just go out and buy the stocks with the lowest multiples. Companies can trade at dirt cheap prices for a number of dire reasons, including low growth prospects, skepticism about earnings, or high risk of bankruptcy.

These dangerous stocks can quickly crater. Buy too many of them, and you'll increase your own risk of bankruptcy!

Thus, for a company to be truly undervalued, Damodaran says in his book Investment Fables, "You need to get a mismatch: a low price-to-earnings ratio without the stigma of high risk or poor growth."

Of course, you're unlikely to find any high-growth, low-P/E companies out there. But Damodaran suggests setting a reasonable minimum threshold for earnings growth, such as 5%. There are also various ways to minimize risk, including staying away from volatile stocks or companies with dangerous balance sheets.

The screen's the thing
We're looking for companies with low price-to-earnings multiples but also a relatively low amount of risk and the potential for reasonable growth. Our screen today will cover the best value plays in the technology hardware and equipment industry, as defined by my nifty Capital IQ screening software.

There are 111 such companies with market caps topping $500 million on major U.S. exchanges. They have an average forward P/E of 16.1. Here are my parameters:

  1. To stay away from bankruptcy risk, I used Damodaran's suggestion and considered only companies with total debt less than 60% of capital.
  2. In hopes of capturing a reasonable amount of growth, I looked at Capital IQ's long-term estimates and kept only companies expected to grow EPS at 5% annually or better over the next five years. Furthermore, I required at least 5% annualized growth over the past five years.

Of the 29 companies passing the screen, here are the 20 with the lowest forward price-to-earnings multiples.

Hewlett-Packard (NYS: HPQ)

$52,953

5.7

44%

7%

Flextronics International (NAS: FLEX)

$4,051

6.0

50%

12%

Harris

$3,992

6.5

53%

8%

Avnet

$4,172

7.0

33%

6%

SYNNEX

$1,044

7.1

29%

10%

Arrow Electronics

$3,850

7.2

39%

8%

Insight Enterprises

$635

7.5

22%

15%

Dell

$27,056

7.6

49%

5%

Jabil Circuit (NYS: JBL)

$4,181

7.8

39%

12%

Corning (NYS: GLW)

$22,709

8.4

10%

9%

Anixter International

$1,873

9.2

46%

15%

SanDisk (NAS: SNDK)

$11,489

9.8

19%

16%

Super Micro Computer

$575

11.2

10%

17%

ScanSource

$877

11.6

15%

10%

Plantronics

$1,443

12.2

3%

14%

Synaptics (NAS: SYNA)

$1,033

12.3

1%

14%

Rofin-Sinar Technologies

$614

12.6

5%

15%

Littelfuse

$1,026

13.1

16%

11%

Coherent

$1,201

13.1

0%

13%

EMC (NYS: EMC)

$45,838

13.8

15%

15%

Source: S&P Capital IQ.

To further stack the odds on your side, Damodaran says you can eliminate any companies that have restated earnings or had more than two large restructuring charges over the past five years. And if volatile swings in price cause you to lose sleep, consider only companies with betas of less than one.

If you want to follow the latest news on these or any other companies, just click here to start your very own Watchlist.

At the time this article was published Fool analyst Rex Moore is feeling the turkey, but still managing to tweet. He owns no companies mentioned here. The Motley Fool owns shares of Rofin-Sinar Technologies and EMC. Motley Fool newsletter services have recommended buying shares of Corning, Rofin-Sinar Technologies, and Dell. Motley Fool newsletter services have recommended writing covered calls in Synaptics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners