As Internet shares break down, investors see value in old tech

NEW YORK, April 11 Fri Apr 11, 2014 4:37pm EDT

NEW YORK, April 11 (Reuters) - The last six weeks have been terrible for many technology shares, but not for the four horsemen that sat atop the last tech boom.

Intel, Oracle, Microsoft and Cisco, known as the four horsemen during the late 1990s technology boom due to their strong performance and leading market share, have all rallied since the beginning of March even as many other tech companies' stocks have been crushed.

These legacy tech names have emerged as an alternative for those who want exposure to the sector, but are spooked by the slump in high-growth stocks like Netflix.

These old tech names have recently attracted more attention because their growth outpaces the broader market but they don't have the high valuations of the one-time momentum favorites.

"They have high cash levels, nice profit margins, and when the economy returns, their cyclicality will be a positive," Robert Stimpson, portfolio manager at Oak Associates Ltd in Akron, Ohio.

"That they're trading at a discount makes them something of a defensive play," he added. "I'd rather own them than something like utilities, which pay a dividend but offer little or no growth."

GO WITH THE FLOW

It can be seen in fund flow figures. The First Trust Dow Jones Internet ETF has seen outflows of $43.86 million since the beginning of March, while the First Trust Nasdaq 100 Technology fund - which counts Facebook as a holding but holds few other "momentum" names - has seen inflows of $9.4 million over that same period, according to data from ETF.com.

While the likes of Netflix and TripAdvisor have lost more than 20 percent, putting them in bear market territory, Dow components Intel Corp and Cisco Systems are up 5.7 percent and 3 percent, respectively, since the beginning of March. Microsoft Corp is up 2.3 percent over that time and is trading near its highest levels since the dot-com bubble.

These stocks are also considered undervalued by various measures, including StarMine's measurement of intrinsic value, which looks at anticipated growth over the next decade. Many of the high-flyers still look pricey, meanwhile.

Both Netflix and Facebook would still be above StarMine's intrinsic value measure even if their shares fell 50 percent. However, IBM is almost 40 percent under its intrinsic value, based on its Friday closing price, while Microsoft and Oracle are more than 20 percent under.

Straddling the line between growth and value is Apple Inc , Wall Street's biggest tech company. While the stock is trading well under its intrinsic value, it also remains well below record levels hit in 2012, suggesting investors remain skeptical that its shares have the ability to recover. The stock has slipped 1.3 percent since the start of March, underperforming other legacy names but far better than the Nasdaq's 7.2 percent drop over the period.

Mark Yusko, chief investment officer of Morgan Creek Capital Management in Chapel Hill, North Carolina, said the iPhone maker was an "in-betweener" stock.

"It has growth, but not as much growth as other tech names, while also not trading at the multiples of others," said Yusko, who oversees about $4 billion in assets and whose firm owns Apple. "It has the best of both worlds, and also the worst of both." (Editing by Jan Paschal)