Why investors have no faith in big tech stocks

Despite consistent growth and profits, aging technology companies remain undervalued. Or do they?

Fortune contributor Kevin Kelleher has an excellent think piece that attempts to explain why "investors think big tech stocks are lame."

Kelleher includes a lot of detailed analysis and touches on several theories regarding why shares of companies such as Microsoft, HP, Intel and Cisco are undervalued relative to earnings.

(Also see: Gates casts vote of confidence in Ballmer by selling 90 million shares of Microsoft)

While none of the theories "fully answer the mystery," Kelleher writes, they basically break down to:

* Tech stocks don't calculate earnings based on GAAP (Generally Accepted Accounting Principles), but rather use non-GAAP numbers that produce artificially higher earnings per share. (Tech companies usually include both figures in their earnings statements, though analysts usually focus on non-GAAP.)

* Big tech companies hoard too much cash, reducing or eliminating dividends.

* Profit growth is slowing and traditional markets are drying up for older tech giants.

Kelleher debunks all of these to some extent, using the kind of logic that value investors would find impeccable.

So what explains why large tech companies aren't getting any love from Wall Street?

For starters, I'm guessing there are a lot fewer "value investors" around these days. After living through the first Internet stock bubble, too many investors are looking for a big score. It's human nature. And the growing social media bubble, as evidenced by crazy secondary market valuations and LinkedIn's blockbuster IPO last week, is only whetting their appetites for a quick killing.

Also, I suspect many investors have little confidence that companies such as Microsoft and HP are adapting to the Web 2.0 world dominated by social media, cloud computing and mobile devices. As I wrote in February:

Whether it's smartphones, tablets, search or social networking (the company is an investor in Facebook, though that's not the same as being a player yourself), Microsoft is playing catch-up, and not playing it all that well. And each market is littered with Microsoft missteps and failures.

Yes, as Kelleher notes, Redmond's Xbox and Kinect have been successes. But does any investor really think Microsoft's salvation is as a games device maker?

Further, Wall Street remains decidedly unconvinced that Microsoft's partnership with Nokia will result in appreciable success in the smartphone market. And its recent $8.5 billion purchase of Internet web videoconferencing player Skype? The jury is out (not to mention skeptical).

Think I'm being too hard on Microsoft? Hey, I'm not the one who recently faulted CEO Steve Ballmer's "Charlie Brown management." (Though I wish I had been; it's a great line.)

HP, of course, has its owns well-chronicled recent problems, the result of poor executive leadership and even poorer board oversight over the past several years.

Meanwhile, Cisco is being underpriced in its networking equipment business, while its recent foray into consumer products was a self-acknowledged failure.

So, if I'm an investor viewing the big picture, I might conclude that I'm looking at dinosaurs -- still big, still dangerous, but committed to defending their legacy businesses and incapable of adapting to a new world that puts a premium on nimbleness and execution. Why would I want to place a big bet on their futures, no matter how much current "value" they represent?

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