3 bargains in tech land

The recent sell-off could be a chance to pick up a few quality operators.

By InvestorPlace Dec 17, 2012 1:39PM
 Global communication copyright Maciej Frolow, Brand X, Getty ImagesIPLOGOBy Tom Taulli

The third-quarter reports from IBM (IBM), Intel (MSFT) and Google (GOOG) indicate that tech land is mired in a slowdown. It could be at least partly a response to fiscal cliff concerns, which are causing companies to delay info-tech spending.

But one thing is clear: Many top tech company stocks are much cheaper now. So, for long-term investors, a nice opportunity might be emerging. And here are some companies that have caught my eye:

Riverbed Technology (RVBD)
YTD Return: -24%

Riverbed develops technology that helps improve the performance of wide-area networks (WANs). While competition is fierce -- such as from Cisco (CSCO) and Juniper Networks (JNPR) -- Riverbed has continued to innovate its product offerings.

With globalization, companies need WAN technologies to allow for better delivery of digital information, such as images and documents. Another key growth factor is the explosion in cloud computing, which allows for remote access to applications.

Despite all this, Riverbed is losing steam in revenue growth, which came to only 15% in Q3. Consider that this rate was 32% in 2011.

Again, the sluggishness is a problem for many tech companies. However, the valuation of Riverbed is certainly attractive, with the forward price-to-earnings (P/E) ratio of 15.

And the growth rate may perk up over the next few years. Keep in mind that Riverbed has struck a variety of acquisitions, such as for OPNET and Zeus, aimed at moving into other businesses like storage optimization and network management tools. They all should be highly synergistic to the core WAN business.

Check Point Software (CHKP)
YTD Return: -11%

Even during recessions, companies still find ways to keep spending on security software. It's usually the No. 1 priority for IT.

No doubt, this is a good thing for Check Point Software, which is a leading security operator (focusing mostly on networks). The company sells its technology on a subscription basis, which gives it a solid recurring revenue stream. And the operating margins are juicy, coming to about 59%. This means Check Point is a nice cash generator. In Q3, operating cash flows increased by 17% to $180.4 million.

It's true that revenue growth rate was somewhat lackluster at 8% in the latest quarter. Yet this is fine when compared to the forward P/E of 13. In fact, the ratio is only 8 when adjusting the market value for the cash balance.

Going forward, Check Point should be able to boost its growth rate, though. It has been aggressively investing in new technologies to take advantage of categories like mobile and cloud computing.

YTD Return: -59%

WebMD operates a massive online medical-information platform that reaches patients, healthcare professionals and consumers. In Q3, the company's sites attracted an average of 107 million monthly unique visitors, up 22% over the past year. About a quarter of that traffic came from mobile phones and tablets.

Despite this, WebMD has seen a drop-off in revenues, plunging from $135.1 million to $117.5 million in the latest quarter. The main reason is that drug companies have been pulling back on ad spending.

To deal with this, WebMD is streamlining its operations. It recently announced cutbacks that should mean $45 million in annualized savings. While the company may still lose money in 2013, its valuation is quite reasonable. The price-to-sales ratio is about 1.5.

At the same time, WebMD has been working aggressively to improve its websites, in terms of design, monetization strategies and content. Of course, the company is also focused on mobile. So, when pharma companies begin to ramp up their digital ad budgets, WebMD will be poised to get back into the growth mode.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of "How to Create the Next Facebook" and "High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders."  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More from InvestorPlace
Dec 17, 2012 2:50PM
WebMD was the original but now the web is huge with MORE choices with more legit opionions.

Look for the stock to be flat or lower.

Dec 17, 2012 8:03PM
Yikes, the six buys in tech right now are Apple, Dell, HP, Intel, Microsoft and Nokia.
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