Cash-Rich Dow Dividend Stocks for Soft Patch

Blue-chip tech stocks are likely to outperform in the weeks ahead as investors migrate to sure winners.
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BOSTON (TheStreet) -- The U.S. unemployment rate held at 9.5% last month as companies added only 71,000 jobs, missing economists' forecast of 90,000. Friday's report was conclusive proof that the economy is softening. The S&P 500 Index is little changed this year and Treasury bonds have rallied. The following Dow stocks may be the safest bets in equities.

Dow stocks are expected by analysts to outperform mega-cap peers and hold massive cash hoards for acquisitions. If the economy continues to weaken, these companies can increase market share by purchasing smaller rivals and squeezing weaker competitors. The charts below show the amount of cash on the companies' balance sheets, the quick ratios and the implied upside in their stocks, based on analysts' median price forecasts. All three companies are leaders in fast-growth technology industries.

3.

Cisco

(CSCO) - Get Report

makes networking equipment.

Quarter

: Cisco reports fiscal fourth-quarter results Wednesday. Fiscal third-quarter profit increased 63% to $2.2 billion, or 37 cents, as revenue grew 27%. The operating margin rose from 20% to 23%. Cisco has $39 billion of cash and $15 billion of debt, equal to a quick ratio of 2.4 and debt-to-equity ratio of 0.3.

Stock

: Cisco has advanced 6.2% in the past year, but has fallen 1% in 2010. It trades at a forward earnings multiple of 13, a 22% discount to the communications equipment peer average. Its PEG ratio, a measure of value relative to predicted long-run growth, of 0.3 reflects a 70% discount to estimated fair value.

Consensus

: Of analysts following Cisco, 41, or 84%, rate its stock "buy" and eight rank it "hold." None rate Cisco's shares "sell." A median price target of $30.43 implies 27% of upside.

RBC

(RY) - Get Report

expects the stock to gain 39% to $33 and

Gleacher & Company

(GLCH)

forecasts that it will rise 35% to $32.

Catalyst

: Cisco repurchased 87 million common shares for $2.3 billion during the quarter, lessening its float and rewarding shareholders with higher earnings per share. It is planning to buy $9.3 billion more common stock. Cisco has completed nine acquisitions since the onset of 2009 and has ample cash for more.

2.

Microsoft

(MSFT) - Get Report

is the world's biggest software maker.

Quarter

: Fiscal fourth-quarter profit soared 48% to $4.5 billion, or 51 cents, as revenue grew 22%. The operating margin rose from 31% to 37%. Microsoft has $37 billion of cash and $5.9 billion of debt, converting to a quick ratio of 1.9 and debt-to-equity ratio of 0.1. It is the largest Dow tech stock based on market value.

Stock

: Microsoft has returned 7% in the past 12 months, but is down 18% in 2010. It sells for a trailing earnings multiple of 12, a forward earnings multiple of 9.6 and a cash flow multiple of 9.1, 56%, 58% and 35% discounts to software peer averages. Its PEG ratio of 0.9 reflects a 10% discount to fair value.

Consensus

: Of researchers following Microsoft, 33, or 83%, advocate purchasing its shares and seven recommend holding. None advise selling. A median target of $33.51 suggests a return of 32%.

Stifel Financial

(SF) - Get Report

and

Credit Suisse

(CS) - Get Report

forecast a price of $40, implying that 59% of upside remains.

Catalyst

: Microsoft has sold more than 175 million Windows 7 licenses to date. Office 2010 was launched during the latest quarter and Microsoft has expanded its so-called cloud offerings with products such as Business Productivity Online Services. Microsoft pays a 2.1% dividend yield with a safe payout ratio of 31%.

1.

Intel

(INTC) - Get Report

is a global leader in chips and integrated circuits.

Quarter

: Intel swung to a second-quarter profit of $2.9 billion, or 51 cents, as revenue grew 34%. The operating margin doubled to 37%. Intel has $18 billion of cash and $2.3 billion of debt, translating to a quick ratio of 2.6 and debt-to-equity ratio of 0.1. Since 2007, it has expanded net income 18% a year.

Stock

: Intel's stock has returned 9.5% in the past year, but is flat in 2010. It trades at a forward earnings multiple of 9.5, a book value multiple of 2.5 and a cash flow multiple of 7.6, 27%, 55% and 46% discounts to semiconductor peer averages. Its PEG ratio of 0.1 signals a 90% discount to estimated fair value.

Consensus

: Of researchers following Intel, 37, or 70%, rate its stock "buy", 14 rate it "hold" and two rank it "sell." A median target of $27.72 implies 35% of upside.

Raymond James

(RJF) - Get Report

and

Piper Jaffray

(PJC) - Get Report

predict that the stock will rise 65% to $34.

Citigroup

(C) - Get Report

expects it to gain 56% to $32.

Consensus

: Intel's second quarter was its best ever. Its gross margin of 78% and net margin of 27% are high relative to other companies within and outside of its industry. It beat analysts' sales consensus by 5% and their net income consensus by 14%. Its stock offers outstanding growth and a 3.1% dividend yield.

-- Reported by Jake Lynch in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.