Monday, April 22, 2002

Technology On The Cheap

NEW YORK - It's been a bad year so far for many technology stocks. On a relative basis, information technology stocks in the S&P 500 have lagged behind the performance of the broader index by 10% in 2002, while the exchange traded fund tracking the Nasdaq 100 index has lost 17% of its value since early January.

Despite these declines, many technology bellwethers are anything but undervalued. Cisco Systems and Intel carry estimated 2002 price-to-earnings (P/E) ratios of 48 and 43, respectively. In contrast, the S&P 500 sells for 30 times estimated 2002 profits.

Using the latter multiple as a benchmark, we looked for cheaper technology investments. Autodesk (nasdaq: ADSK - news - people ), for example, has an estimated 2002 P/E of 17. The San Rafael, Calif.-based firm's AutoCAD software is popular with animators, mapmakers, and architectural and mechanical designers.

Down 18% from a 52-week high of $47, Autodesk shares look undervalued by several measures beyond estimated earnings multiples. The stock sells for 11 times cash flow (in the sense of net income plus depreciation and amortization) versus a five-year average price-to-cash-flow multiple of 13.

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