Go on the Defensive: Microsoft, Oracle, HP - TheStreet

Go on the Defensive: Microsoft, Oracle, HP

Hewlett-Packard, Oracle and Microsoft trade at cheap prices and offer investors a margin of safety.
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BOSTON (TheStreet) -- Large-cap technology stocks are trading at cheap prices. Investors seeking growth with a margin of safety should consider the following companies.

Hewlett-Packard

(HPQ) - Get Report

makes computer hardware and offers consulting services worldwide. Since 2007, it has increased revenue 7.4% annually, on average, and boosted earnings per share 16% a year. Its stock has remained flat over that period.

Quarter

: Fiscal second-quarter profit increased 28% to $2.2 billion, or 91 cents a share, as revenue grew 13%. The operating margin inched up from 9% to 10%. Hewlett-Packard has $14 billion of cash and $18 billion of debt, equal to a debt-to-equity ratio of 0.4.

Stock

: Hewlett-Packard has advanced 22% in the past year, beating indices. Its PEG ratio, a measure of value relative to growth, of 0.3 reflects a 70% discount to estimated fair value. Its price-to-projected-earnings ratio of 9.1 is 44% below the peer average.

Consensus

: Of analysts covering Hewlett-Packard, 28, or 80%, advise purchasing its shares and seven recommend holding them.

Citigroup

(C) - Get Report

offers a target of $65, leaving a potential return of 42%.

Goldman Sachs

(GS) - Get Report

predicts the stock will hit $62.50.

Oracle

(ORCL) - Get Report

designs systems software to help businesses manage and increase their operations. During the past three years, it has expanded sales 12% annually, on average, and grown earnings 12% a year, which helped its stock achieve annualized gains of 5%.

Quarter

: Fiscal third-quarter profit decreased 10% to $1.2 billion, or 23 cents, as revenue increased 17%. The operating margin narrowed from 36% to 34%. Oracle has $17 billion of cash and $16 billion of debt, converting to a debt-to-equity ratio of 0.6.

Stock

: Oracle has appreciated 3.2% during the past 12 months, lagging behind U.S. benchmarks. It sells for a price-to-projected-earnings ratio of 11, a 44% discount to its peer average. Its PEG ratio of 0.4 demonstrates a 60% discount to projected fair value.

Consensus

: Of researchers following Oracle, 31, or 78%, rate its stock "buy," eight rate it "hold" and one ranks it "sell."

Piper Jaffray

(PJC) - Get Report

values Oracle at $32, leaving 48% of potential upside.

Morgan Stanley

(MS) - Get Report

expects the stock to hit $31.

Microsoft

(MSFT) - Get Report

sells hardware and software worldwide, including the Windows operating system. Since 2007, it has increased revenue 6.3% a year, on average, and expanded earnings per share 12% a year. Its stock has declined 5% a year over the same span.

Quarter

: Fiscal third-quarter profit climbed 35% to $4 billion, or 45 cents, as revenue increased 6.3%. The operating margin rose from 35% to 36%. Microsoft has $40 billion of cash and $6 billion of debt, translating to a quick ratio of 1.9 and a debt-to-equity ratio of 0.1.

Stock

: Microsoft has risen 13% during the past year, matching the

Dow Jones Industrial Average

. It trades at a price-to-projected-earnings ratio of 11, a 46% discount to its peer average. Its PEG ratio of 0.5 reflects a 50% discount to estimated fair value.

Consensus

: Of firms rating Microsoft, 28, or 78%, advocate purchasing its shares and eight recommend holding them.

Thomas Weisel

(TWPG)

forecasts that the stock will rise 61% to $40.

UBS

(TICKER)

predicts that the shares will climb 53% to $38.

Buy-Rated Stocks Top 10 Buy-Rated Stocks Under $5

-- Reported by Jake Lynch in Boston.

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