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Microsoft CEO Steve BallmerChris Graythen

Technology stocks, which led the equity market in the past two months, fell sharply after Cisco on Nov. 10 revealed earnings and sales guidance that was trailed analysts' expectations.

Cisco has tumbled 19 per cent since then. Other technology stocks have been punished. Here are five high-quality technology companies selling for bargain prices. They are ordered by forward earnings multiple, from cheap to cheapest.

5. Microsoft is the world's largest software company, selling the Windows operating system and Office product suite. It's a Dow component and technology bellwether. Since 2007, it has grown sales 6.7 per cent annually, on average, and boosted earnings per share 11 per cent a year. Yet, its stock suffered 9.1 per cent annualized losses over that span.

Quarter: Microsoft's fiscal first-quarter profit increased 51 per cent to $5.4 billion. Earnings per share advanced 55 per cent to 62 cents, boosted by a smaller float, beating the consensus by 13 per cent. Revenue grew 25 per cent to $16 billion. The gross margin widened from 83 per cent to 85 per cent and the operating margin rose from 35 per cent to 43 per cent. Microsoft held $44 billion (U.S.) of cash at the end of the quarter and $11 billion of debt, translating to quick ratio of 2.1 and a debt-to-equity ratio of 0.2.

It increased its dividend from 13 cents to 16 cents, equaling a yield of 2.5 per cent with a 24 per cent payout ratio.

Valuation: Microsoft trades at a sizable discount to comparable technology investments. Its stock sells for a trailing earnings multiple of 11, a forward earnings multiple of 9.5, a sales multiple of 3.3 and a cash flow multiple of 8.4, 65 per cent, 55 per cent, 79 per cent and 50 per cent discounts to software industry averages. Its PEG ratio, a measure of value relative to predicted long-run growth, of 0.7 signals a 30 per cent discount to estimated fair value.

Of analysts covering Microsoft, 30 advise buying its stock and 11 recommend holding. None say to sell. A median target of $32.95 implies 27 per cent upside. Catalyst: With nearly $34 billion of net cash, Microsoft has ammunition for buybacks, dividend boosts and acquisitions, all of which are beneficial to shareholders. It has completed two acquisitions, for Sentillion and AVICode, in 2010. A deal for 3D-sensing-technology firm Canesta is currently pending. Microsoft Kinect, a sensing technology compatible with its Xbox 360 gaming console, sold one million units in the first 10 days of availability.

Bullish Scenario: Stifel Financial expects Microsoft's stock to rise 54 per cent to $40.

Bearish Scenario: FBR Capital Markets predicts the stock will climb 8 per cent to $28.

4. Dell is the world's third-largest supplier of personal computers. Its focus on the consumer segment of the market hurt its financial performance during the Great Recession. Dell's revenue has stagnated since 2007 and its net income has dropped 18 per cent annually, on average. Dell's earnings per share decreased by 14 per cent a year, on average, during that span.

Quarter: Dell's third-quarter net profit more than doubled to $822 million, or 42 cents a share, as revenue jumped 19 per cent to $15 billion. Dell blew past analysts' consensus adjusted earnings target by 39 per cent, but it missed on the top-line by 2.2 per cent. The non-GAAP operating margin rose from 5.7 per cent to 7.6 per cent. Though consumer revenue dropped 4 per cent, every other unit posted double-digit percentage gains. Europe, Middle East and Africa revenue rose 15 per cent. China and Japan sales climbed 29 per cent. Large enterprise sales gained 27 per cent. And small and medium business sales rose 24 per cent.

Valuation: Dell's stock trades at a trailing earnings multiple of 17, a forward earnings multiple of 9.2, a sales multiple of 0.5 and a cash flow multiple of 7.2, 19 per cent, 39 per cent, 85 per cent and 43 per cent discounts to computer and peripheral peer averages. Its PEG ratio of 0.2 reflects and 80 per cent discount to estimated fair value.

Of research analysts following Dell, 18 advocate purchasing its shares, 18 advise holding and two recommend selling them. A median target of $15.30 suggests a 12-months return of 11 per cent. Dell popped 2.9 per cent yesterday. Still, the stock has dropped 4.3 per cent year-to-date.

Catalyst: Like Microsoft, Dell has $14 billion of net cash on hand for inorganic growth. However, it does not pay quarterly dividends so buybacks appear to be a more likely scenario. Dell lost a bidding war for 3PAR to Hewlett-Packard . Dell is nevertheless eager to expand its software, service and cloud offerings. It has completed four acquisitions, for Exanet, KACE Networks, Ocarina Networks and Scalent Systems, in 2010. A deal for cloud-computing software-as-a-service company Boomi was announced on Nov. 2 and is currently pending.

Bullish Scenario: Deutsche Bank forecasts that Dell's stock will advance 46% to $20.

Bearish Scenario: Barclays values Dell's stock at $14, implying it is just below fair value.

3. Lexmark sells laser and inkjet printers and multi-function devices and related products such as ink cartridges. Lexmark's net sales have decreased 6 per cent annually, on average, since 2007, but its earnings per share rose by 9 per cent a year, on average, over that span and its stock delivered marginally positive gains.

Quarter: Lexmark's third-quarter profit multiplied to $72 million, or 90 cents a share, from $10 million, or 13 cents, in the year-ago quarter. Revenue climbed 7 per cnet. Lexmark beat the consensus earnings target by 12 per cent, but missed the top-line estimate by 2.5 per cent, sending its stock down 20 per cent. The gross margin extended from 39 per cent to 41 per cent and the operating margin stretched from 7.8 per cent to 11 per cent.

Lexmark held $1.1 billion of cash and equivalents and $649 million of debt at the end of the quarter, converting to a quick ratio of 1.3 and a debt-to-equity ratio of 0.5. Valuation:

Lexmark's stock sells for a trailing earnings multiple of 9.2, a forward earnings multiple of 8, a book value multiple of 2.2, a sales multiple of 0.7 and a cash flow multiple of 4.6, 56 per cent, 47 per cent, 51 per cent, 78 per cent and 64 per cent discounts to computer and peripheral peer averages. Its PEG ratio of 0.1 reflects a 90% discount to estimated fair value.

Of analysts following Lexmark, five advise clients to purchase shares, five recommend holding and three say to sell them. A median target of $42 implies 14 per cent of upside in the next 12 months.

Lexmark has gained 42 per cent so far in 2010.

Catalyst: Lexmark has $470 million of net cash on its balance sheet. It recently purchased Perceptive Software, an enterprise content management company. Investors dumped Lexmark's stock following its quarterly report on news that chief executive Paul Curlander will retire this spring and inventory grew at a record pace for the third quarter. Still, pessimism creates opportunity and Lexmark's valuation makes it a compelling equity in the technology space.

Bullish Scenario: Citigroup expects Lexmark's stock to appreciate 49 per cent to $55.

Bearish Scenario: Deutsche Bank values Lexmark at $37, suggesting it is fairly valued.

2. Hewlett-Packard is the world's biggest maker of PCs. Its Services segment offers consulting and outsourcing services to businesses worldwide. HP's net sales have increased 7.1 per cent annually, on average, since 2007 and its net income has grown by 8.3 per cent a year over that span. Its stock, however, suffered annualized loss of 6.9 per cent.

Quarter: HP's third-quarter net income increased 6.1 per cent to $1.8 billion and earnings per share gained 8.7 per cent to 75 cents, boosted by a smaller share count. Revenue expanded 11 per cent to $31 billion. HP exceeded analysts' consensus earnings target by 0.2 per cent and their consensus sales target by 1.4 per cent.

The quarterly gross margin remained steady at 27 per cent, but the operating margin extended from 9.6 per cent to 9.9 per cent.

HP has a sturdy balance sheet, with $15 billion of cash and $20 billion of debt, equaling a quick ratio of 0.7 and a debt-to-equity ratio of 0.5. Cash rose 8 per cent year-over-year.

Valuation: HP's stock trades at a trailing earnings multiple of 11, a forward earnings multiple of 8, a book value multiple of 2.2, a sales multiple of 0.8 and a cash flow multiple of 7.7, 45 per cent, 47 per cent, 51 per cent, 75 per cent and 39 per cent discounts to computer and peripheral peer averages. Its PEG ratio of 0.3 demonstrates a 70 per cent discount to estimated fair value.

Of researchers evaluating HP, 28, or 74 per cent, advocate purchasing its stock, 10 recommend holding and one advises selling. A median target of $53.44 suggests a 12-month return of 28 per cent.

HP has fallen 19 per cent in 2010, lagging major indices.

Catalyst: HP purchased cloud-computing specialist 3PAR on Sept. 27 for $1.2 billion. It then bought cyber-security company ArcSight on Oct. 21. It has completed seven other deals in 2010, including a purchase of 3Com, Fortify Software, Stratavia, Palm and Motionbox, as well as the Linux operating system and HyperSpace assets from Phoenix Technologies. HP is an aggressive acquirer and is likely to continue its acquisition binge in 2011.

Bullish Scenario: Citigroup forecasts that HP's stock will rise 56 per cent to $65.

Bearish Scenario: Deutsche Bank expects HP's stock to climb 8 per cent to $45.

1. Corning makes specialty glass and ceramics with technology applications, namely glass substrates for liquid-crystal design television and computer displays. Since 2007, Corning's sales have risen 4.3 per cent annually, on average, and earnings per share have grown 17 per cent a year. Though, Corning's stock fell 9.3 per cent a year, on average.

Quarter: Corning's third-quarter profit increased 22 per cent to $785 million, or 50 cents a share, as revenue expanded 8.3 per cent to $1.6 billion. Corning missed analysts' consensus earnings target by 3.2 per cent and their top-line estimate by 0.7 per cent. Still, its stock responded favorably to the release, gaining 1.2 per cent around the announcement. The quarterly gross margin stretched from 56 per cent to 58 per cent and the operating margin extended from 16 per cent to 20 per cent. Corning has $5 billion of cash and $2.4 billion of debt, converting to a quick ratio of 3.5 and a debt-to-equity ratio of 0.1.

Valuation: Corning's stock sells for a trailing earnings multiple of 8.4, a forward earnings multiple of 8.9, a book value multiple of 1.5 and a cash flow multiple of 10, 52 per cent, 32 per cent, 25 per cent and 21 per cent discounts to electronic equipment industry averages. Its PEG ratio of 0.1 reflects a 90 per cent discount to estimated fair value. Of analysts following Corning, 16, or 67 per cent, advise clients to purchase its shares, seven recommend holding and one advocates selling them. A median target of $22.29 implies a 12-month return of 26 per cent. Corning has fallen 8.2% this year, trailing major indices.

Catalyst: Corning has $2.6 billion of net cash, enough for a sizable acquisition. Its business has significant momentum, with trailing 12-month revenue up 29% and net income up 115 per cent. Sentiment is turning for Corning. In the latest quarter, 13 of its 20 largest shareholders purchased additional shares as one held steady and six trimmed holdings. Given Corning's expertise, competitive position and economic moat, it's notably undervalued.

Bullish Scenario: Stifel Financial predicts that Corning's stock will climb 52 per cent to $27.

Bearish Scenario: JPMorgan values Corning at $17.50, implying it is marginally overvalued.

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