Tech stocks didn't duplicate the better than 20% gains they posted as a group in 2014, but driven by the powers of "FANG," techs have delivered year-to-date an average return of 5.2% -- significantly outperforming the slight rise in theS&P 500 (SPX) index.
Among 2015's biggest tech gainers were FANG stocks Amazon (AMZN - Get Report) and Netflix (NFLX - Get Report) , which have skyrocketed by 120% and 141%, respectively, with just a few trading days left in the year. Meanwhile, Facebook (FB - Get Report) and Alphabet (GOOGL - Get Report) posted respective gains of 37% and 49%. Take a look at the chart. 
FB Year to Date Price Returns (Daily) data by Charts
As evidenced by these impressive gains, which also beat the 1% decline in the Dow Jones Industrial Average (DJI) , it would appear that FANG stocks did the majority of the heavy lifting among tech shares. But 2015 also featured several surprises. For instance, Microsoft (MSFT) has climbed some 21% in 2015.
MSFT stock -- up some 30% in three months -- was not off to a strong start in 2015, but the company has become a bigger threat in cloud computing. In addition, its Surface tablet and Windows 10 operating system suggests Microsoft's revenue streams have more room to grow and diversify.
Microsoft, which closed at $56.55 on Tuesday, is now moving in a direction that gives investors optimism. It competes more effectively with Salesforce.com (CRM) (up 34% in 2015) in the cloud and with Apple (AAPL) (down 2.6% in 2015) in hardware design and software. Beyond its solid stock performance, the Windows and Office maker also pays a strong 36-cent quarterly dividend that yields 2.56% annually. So, with MSFT stock priced at just 17 time consensus fiscal 2017 estimates of $3.12 a share -- in-line with the S&P 500 at a forward P/E of 17 -- investors should buy now.
Where Microsoft thrived, former bellwether IBM (IBM) extended its losing streak. After IBM stock declined 3% 2013, Big Blue lost almost 18% of its value in 2014 and has lost more than 13% so far in 2016. All told, IBM has lost some 27% and 4% of its value in the past three years and five years, respectively. Will things change in 2016? I wouldn't bet on it. Recall, entering 2015, there were also tons of optimism for IBM, spurred by its enterprise partnership with Apple. It didn't pan out for Big Blue.
Sure, IBM is still posting strong profits (over $3 billion in the third quarter), but revenue remains a struggle, down 14% year over year in third quarter. For the entire year revenue is projected to fall by about 12% from 2014. As for f2016, revenue is projected to decline by about 2%. So, despite IBM stock trading at near 52 week lows, the company has limited catalysts -- beyond cost-cutting -- to send its shares higher.
By contrast, stocks like Salesforce.com and Workday (WDAY) (down 2% in 2015) should continue to do well since corporations continue to embrace the type of on-demand cloud services they offer -- a platform known as SaaS (software-as-a-service). In the realm of top dividend payers, Cisco (CSCO) (down 1% in 2015) should be on many watch lists. There are some 15% implied gains are on the table based on the stock's average analyst 12-month price target of $31. CSCO stock currently trades around $27.77.
What's more, at just 14 times earnings, CSCO stock is also cheap, trading seven points below the S&P 500 index. And even on a forward-looking basis, CSCO shares are also undervalued at 11 times fiscal 2016 earning-per-share estimates of $2.30 a share -- six points below the S&P 500 index.
What's more, Cisco pays a solid 21-cent quarterly dividend that yields 3.07% annually -- 1.07 basis points above the 2.00% yield paid out by S&P 500 stocks. Finally, with a net cash position of roughly $35 billion, Cisco has tons of ways to return cash to shareholders in 2016 via buybacks and higher dividends.
FB Year to Date Price Returns (Daily) data by ChartsAs evidenced by these impressive gains, which also beat the 1% decline in the Dow Jones Industrial Average (DJI) , it would appear that FANG stocks did the majority of the heavy lifting among tech shares. But 2015 also featured several surprises. For instance, Microsoft (MSFT) has climbed some 21% in 2015.
Microsoft, which closed at $56.55 on Tuesday, is now moving in a direction that gives investors optimism. It competes more effectively with Salesforce.com (CRM) (up 34% in 2015) in the cloud and with Apple (AAPL) (down 2.6% in 2015) in hardware design and software. Beyond its solid stock performance, the Windows and Office maker also pays a strong 36-cent quarterly dividend that yields 2.56% annually. So, with MSFT stock priced at just 17 time consensus fiscal 2017 estimates of $3.12 a share -- in-line with the S&P 500 at a forward P/E of 17 -- investors should buy now.
Where Microsoft thrived, former bellwether IBM (IBM) extended its losing streak. After IBM stock declined 3% 2013, Big Blue lost almost 18% of its value in 2014 and has lost more than 13% so far in 2016. All told, IBM has lost some 27% and 4% of its value in the past three years and five years, respectively. Will things change in 2016? I wouldn't bet on it. Recall, entering 2015, there were also tons of optimism for IBM, spurred by its enterprise partnership with Apple. It didn't pan out for Big Blue.
Sure, IBM is still posting strong profits (over $3 billion in the third quarter), but revenue remains a struggle, down 14% year over year in third quarter. For the entire year revenue is projected to fall by about 12% from 2014. As for f2016, revenue is projected to decline by about 2%. So, despite IBM stock trading at near 52 week lows, the company has limited catalysts -- beyond cost-cutting -- to send its shares higher.
By contrast, stocks like Salesforce.com and Workday (WDAY) (down 2% in 2015) should continue to do well since corporations continue to embrace the type of on-demand cloud services they offer -- a platform known as SaaS (software-as-a-service). In the realm of top dividend payers, Cisco (CSCO) (down 1% in 2015) should be on many watch lists. There are some 15% implied gains are on the table based on the stock's average analyst 12-month price target of $31. CSCO stock currently trades around $27.77.
What's more, at just 14 times earnings, CSCO stock is also cheap, trading seven points below the S&P 500 index. And even on a forward-looking basis, CSCO shares are also undervalued at 11 times fiscal 2016 earning-per-share estimates of $2.30 a share -- six points below the S&P 500 index.
What's more, Cisco pays a solid 21-cent quarterly dividend that yields 3.07% annually -- 1.07 basis points above the 2.00% yield paid out by S&P 500 stocks. Finally, with a net cash position of roughly $35 billion, Cisco has tons of ways to return cash to shareholders in 2016 via buybacks and higher dividends.
By Richard Saintvilus
Source:http://www.thestreet.com/story/13408594/1/technology-stocks-year-in-review-what-to-buy-and-avoid-in-2016.html?kval=dontmiss
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