Cisco (CSCO), Oracle (ORCL), Sun (SUNW), and EMC (EMC) were the darlings of the internet boom and were referred to as the ‘Four Horsemen‘. Your broker was overheard in 2000 “Yes, things are in fact a bit irrational but these companies have real products, revenues, and earnings and are investment-grade leaders of the new economy.”
Your broker neglected to mention that the biblical Four Horsemen of the Apocalypse were steered by four riders – Conqueror, War, Famine and Death. I’ll leave it to my readers to pair them appropriately.
Today, I like to refer to Google (GOOG), Apple (AAPL), HP (HPQ), and AMD (AMD) as the new Four Horsemen of Web 2.0. Reading and listening to the media chatter about these companies induces an uncomfortable dot-com deja vu.
Bill Gates, CEO of Microsoft (MSFT) and Paul Ottellini, CEO of Intel Corp. (INTC) co-wrote an editorial in today’s WSJ. Clearly they are appealing to those who have fled their equities for the promises of Web 2.0.
Recently, we’ve read on the pages of The Wall Street Journal that we’ve reached the end of the personal computer era and that the open, broad industry approach that has enabled today’s rich computing experiences doesn’t apply to the world of digital devices.
The reality is a little different. The truth is that the model which has fueled the incredible popularity and affordability of the PC will continue to drive innovation and choice in the burgeoning area of personal devices such as cell phones, digital players and mobile PCs. As such, the PC is becoming more important and popular as a key enabler for these new digital scenarios in every corner of the world, from Indianapolis to Istanbul. If anything, it is, to paraphrase Churchill, perhaps the end of the beginning…
Gates and Otellini have a very valid point. While MP3 players, digital cameras, phones, and web based applications have stolen the show in the marketplace, all of them still rely on the PC as a digital hub. Nothing has emerged that will replace it. The only threat is the ‘thin-client’ web based application model, an idea that gets trotted out every few years and then is subsequently put back in the barn.
Competitively, all four of these companies are still forces to be reckoned with.
This is what the market cap vs. P/E multiple relationship looks like.
While the new ‘Four Horsemen’ may be the preferred growth engines of Web 2.0, I think these four out-of-favor companies represent a better investment vehicle for the next five years. Those with more exotic tastes can hedge by selling AMD, AAPL, HPQ, GOOG short while going long INTC, MSFT, DELL, and YHOO. This is a more market neutral strategy.
Inspiration and some data: USA TODAY