Conservative investors sometimes shun tech stocks because they look riskier than stocks in other industries. After all, Warren Buffett famously avoided tech stocks for most of his career, and Peter Lynch told investors to always “invest in what you know” — which often excludes tech companies.
There are certainly risky plays across the tech sector, but there are also safe stocks that investors won’t lose any sleep over. Let’s take a look at three “mature tech” stocks that fit that bill — Texas Instruments (NASDAQ:TXN), HP (NYSE:HPQ), and Cisco (NASDAQ:CSCO).
Texas Instruments sells a wide range of analog and embedded chips for the industrial, automotive, personal electronics, communication equipment, and enterprise services markets. That well-diversified portfolio prevents any single headwind from knocking the entire company off course.
TI’s quarterly revenue rose annually and accelerated for four straight quarters thanks to strong chip demand in the automotive and industrial markets. Robust iDevice sales this year could also bolster TI’s top line growth, since Apple is one of its major customers.
Analysts expect TI’s revenue to rise 7% this year. TI’s margins have also been expanding thanks to a newer 300mm process which cuts manufacturing costs by about 40%, so its earnings are expected to grow 18% this year.
TI pays a forward dividend yield of 2.4%, and it’s hiked that payout annually for 13 straight years. It also reduced its share count by 42% during that period. TI spends 100% of its free cash flow on dividends and buybacks, making it one of the most shareholder-friendly chipmakers in the industry. To top it off, the stock still isn’t pricey at 22 times earnings, versus the industry average P/E of 25 for semiconductor makers.
HP split with Hewlett-Packard Enterprise in late 2015, with the former retaining the PC and printing businesses and the latter keeping the enterprise hardware and software businesses. HP’s aging PC and printing businesses fared surprisingly well after the split.
Research firm Gartner recently reported that global PC shipments fell 4% annually during the second quarter, marking the industry’s 11th straight quarter of declines. But amid that slowdown, HP’s shipments rose for the fifth straight quarter, thanks to solid growth in the U.S. and robust sales of its laptops, which offset softer desktop sales.
Its printing business has also been evolving with the introduction of mobile printers for smartphones and industrial 3D printers. It’s also taking aim at the A3 copier market by buying Samsung‘s printing business.
HP returned 95% of its free cash flow to shareholders via buybacks and dividends in the first half of 2017. It currently pays a forward yield of 2.9%, and it trades at just 13 times earnings versus the industry average P/E of 21 for PC manufacturers. Analysts expect HP’s revenue and earnings to respectively rise 4% and 3% this year.
Cisco is one of the world’s top networking hardware manufacturers. At first glance, its growth looks anemic, with analysts expecting its sales to fall 3% this year and its earnings to rise just 1%. That’s because demand for its routers and switches — which generate nearly half of its revenue — is slowing down due to market saturation.
But Cisco is also inorganically expanding into higher growth markets like cybersecurity and wireless equipment to offset those declines. It has plenty of cash to do so — it generated $12.7 billion in free cash flow over the past 12 months, and it finished last quarter with $68 billion in cash and equivalents.
96% of that cash remains overseas, but lower corporate tax rates would let Cisco repatriate that cash for domestic acquisitions, buybacks, and dividends — which would unlock major new growth opportunities for the aging company. Until that happens, Cisco’s forward dividend yield of 3.7% should satisfy income investors. It’s also hiked that payout every year since it starting paying dividends in 2011.
Cisco is also cheap at 16 times earnings, which is well below the industry average P/E of 27 for communication equipment providers. Therefore, Cisco’s high yield, low valuation, strong cash flows, and inorganic growth opportunities all make it very safe stock to own.
The key takeaways
There’s no such thing as a “risk-free” stock. But for investors who want exposure to the tech sector with minimal risk, Texas Instruments, HP, and Cisco are all conservative plays which are supported by stable businesses, low valuations, and decent dividends.