Let ‘Er Rip: 4Q Results Surprise on Upside, Capital Spending Surges

Last year, a lot of famous stock gurus predicted that U.S. corporations would finally open their wallets for capital expenditures in 2013, a trend particularly good for tech companies that rely on sales of expensive services and equipment. Early signs indicate the gurus were right.

Bank of America (BAC) Strategist Savita Subramanian points out the evidence in a Barron’s article published Monday. Looking at fourth quarter earnings published in January, she reports that most corporations suggested their capital expenditures would be above the level analysts’ had predicted. For every company that guided below consensus capex expectations, she notes, three guided above.

As YCharts has discussed, U.S. corporations have been sitting on more than $1 trillion in cash, holding down costs while awaiting signs of an improving economy. It’s a hoard that could give a serious boost to corporate profits once spending picks up, and the latest earnings indicate that it already has – faster than investment experts expected. Subramanian reports that of 254 S&P 500 companies that reported earnings so far, 58% beat analyst forecasts on EPS; 61% beat on sales; and 39% beat on both. The tech sector, along with industrials and materials, reported the biggest beats.

Perhaps it’s time to take look into some of those big, dividend paying tech stocks whose valuations remain depressed. Network maker Cisco (CSCO) has attracted upgrades lately. Its shares come with a 2.4% dividend yield. Intel (INTC) also is getting a little more respect in recent months. Its PE ratio is under 10, and its dividend yield is 4.1%. Shares of International Business Machines (IBM) carry a 2% dividend yield and sell for a PE ratio of 14, which is about as low as they have been priced in a couple of years.

CSCO Chart

CSCO data by YCharts

Just make sure to look at all the factors that brought these shares to their weakened states. Tightfisted corporations probably weren’t their only problems.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.



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