9 interesting stocks in a fat tail event - like AAPL, MSFT & DELL

As I said in an interview on CNBC Thursday, there is a chance that stock markets will continue to climb, because stocks at the moment are the least bad asset. The hunt for yield is picking up, as even credit bonds are becoming expensive in some pockets.

In  case of a fat tail event (like a breakup of the euro, or a manifestation of the USA's 'budget cliff' currently scheduled for January 2013), tech stocks are less likely to be less influenced by politician's decisions, as there are major trends underway among the rapidly rising middle classes in Asia and Latin America. These newly moneyed consumers have the interest and buying power to acquire PC’s, smartphones etc.

I've put together a list of interesting tech stocks below, and you may be suprised to see that one of them is Dell Computer. (DELL) In some cases PC makers have been unjustly written off as dinosaurs. The PC is not dead yet and its death is not imminent just because of tablets are becoming more popular. Tablets can't do everything a PC does, either in the home or in the business sphere. If companies have a free cash flow of more than 8% of market cap, then you have your fingers on a money maker. Maybe not a growth machine – but this is not the primary objective in a potential fat tail environment.

The screening
I have used the Saxo Bank Equity screener to find this small selection of nine stocks. All of them are in the IT sector, but not in “Aerospace and Defence”, where political events may mean big cutback. Further in the selection I have set a Market Cap above USD 2bn, P/E less than 12 in next year’s earnings, Free Cash Flow to Market Cap above  8%, Return on Equity (ROE) higher than 20% and the consensus target price should be 15% or more above last close, see chart 1 as well.

The selected stocks
There are some nice companies in this search and they should be able to provide you with some support if and when the markets hit a fat tail event, see chart 2. In the mean time, they offer investors cash flow generation but not big dividend yield (DY) -  MSFT is the best on the list with 2.7% DY. Apple (NASDAQ:AAPL) has the upper hand at the moment in the smartphone area, even though Samsung (KRX:005930) is getting closer. In the tablet arena, Apple seems to be the default choice, which is a huge advantage. Microsoft (NASDAQ:MSFT) is on all PC's, and initiatives with Win8 smartphones could become a more important area. Dell (NASDAQ:DELL) guided lower than expected in May; the stock was hit hard and trades 30% lower now. Look into it and maybe the risk/reward is good enough for you.

If you want to dig further into the Tech industry (or any other industry), you can apply 250+ screening criteria in our Stock Screener or check out Saxo Bank’s Equity Research offering.

Conclusion
Investors should have a look at this bunch and seriously consider having one or more of these names in their portfolio. They offer huge cash generation and I expect them to be less prone to be hit hard if the markets should turn south.