12 Promising Tech Stocks - Barron's

Tech shares are trading at major discounts, but Barron's Mark Veverka cautions investors to pick selectively. Below are several tech stocks that are showing signs of life in a beaten down sector.

First, the bad news: tech stocks are down precipitously this year, with the Morgan Stanley tech index down 45% vs. a 40% decline for the S&P 500. Sales are expected to drop, as Goldman Sachs forecasts this year's consumer spending will be a measly 0.6% before dropping to 0.5% in 2009, while key corporate clients will likely reduce IT spending by 4.5%, the first decline in a decade. The cheap dollar, which had helped overseas sales, is now strengthening against the euro and other currencies. To put it simply, says Bill Whyman at International Strategy and Investment, "tech is fighting economic gravity."

Still, the dismal forecasts have depressed stock prices, creating an opportunity to pick up a select few quality stocks at cheap prices. Thomas Laming, of the AFBA Science & Technology Fund, believes "tech will do well over the next few years" but emphasizes investors should be looking for companies with strong balance sheets, a good management team and exceptional technology to carry them through several rough quarters. Hewlett-Packard (HPQ) and Qualcomm (QCOM) fit these requirements, as does lesser-known Ceragon Networks (CRNT).

Consumers are cutting back on spending, but consumer-based companies like Nintendo (NTDOY.PK) and Amazon (AMZN) should fare better than most. They offer cheaper prices, and Amazon's free shipping could help assuage buyers' fears about the costs of purchasing gifts and products. Walter Price, of Allianz Global Investor, sees Amazon's market value, currently at $20.8B, rising to $30B within five years.

Dan Chung, of Fred Alger Management, believes Cognizant (CTSH), a technology outsourcing outfit, is the best in its field and has the best growth prospects. Trading around $17, the share price has been halved since last year but major financial institutions have remained clients. Chung thinks revenues and profits can grow 20% in 2009, bringing the stock price back to the $27-35 range.

Chung also sees Apple (AAPL), trading around $96, as a potential bargain. "You don't get many [affordable] opportunities to buy a large-cap, highly liquid leader in its field with such a pristine balance sheet," he says, predicting a 22% rise in 2009 earnings to $6.25/share. The shares should trade between $150-$180 on strong cashflow from the iPhone.

Allianz's Price thinks "the best way to monetize the mobile Internet is search," which is why he sees Google's (GOOG) stock going back to $600 from its recent $339. He believes Google can manage 20% annual growth for years to come.

• Other tech stocks Veverka highlights: SNPS, ATHR, VAR, ENER

Comments

[mollytjm:]

good comment on Appl, especially. with so much $ and no debt and great innovation, they'll do well...and the holiday season should be a pretty good one for them.

2008 Oct 26 10:04 AM

[stockresear...:]

great article on BBI a must read seekingalpha.com/artic...

BBI 42% growth phase has Forward P/E of 3.5 Carl Icahn owns 20 Mil shares

2008 Oct 26 12:52 PM

[kozakkk667:]

You state "Amazon's free shipping could help assuage buyers' fears about the costs of purchasing gifts and products..". It should be pointed out that "free shipping" is "free" only when you sign up for the $79 Amazon Prime annual fee. In that sense it is akin to Costco's membership fees in that once you signed up for Amazon Prime it might provide certain amount of "stickiness" to continue buying from Amazon. However, the real test is how many renew and also what competitive barrier it presents. For example Sears offers an identical program called ShipAdvantage also for $79. Also, although not as a formal annual membership program, most internet sites offer "free shipping" especially during the holiday shopping season. So, I thing "free shipping" like "kindle" is just puffery to hype AMZN's potential and thus its lofty valuation.

2008 Oct 26 01:37 PM

[kozakkk667:]

continuing on Amazon's "free shipping" issue, search on google yielded this interesting site:
www.freeshipping.org/s.../

2008 Oct 26 01:54 PM

[stox2buy:]

If you are looking for a 10 baggercheck this out....Thermogenesis(K...

The early CSCO of regenerative medicine aka stem cell therapy.

2008 Oct 26 08:28 PM

[NotVerySmart2:]

Bullish pennant signal on APPL (break out at $100), anyone feel like buying? With a P/E under 20 (17.5 today), and new products that just kill the competition, I know what I want for Xmas....More APPL shares at $90 please!

NVS (2.0)

2008 Oct 26 08:58 PM

[NotVerySmart2:]

Stox2Buy..Isn't there a rule about spamming crap here? Don't go away mad...just go away.

NVS (v2.0)

2008 Oct 26 08:59 PM

[Tom B:]

I agree on AAPL and GOOG; these are "no-brainers". AAPL is the leader in its field, by a wide margin, technology-wise; Google has no competitors.

AMZN is too expensive for my blood, with respect to P/E.

HPQ has a weakening business model.

2008 Oct 27 08:58 AM

[aaavoid:]

Based on historical valuations, they may seem cheap, but noone really knows how this global downturn will hurt consumer spendings. If say there are 100 buyers of apple iphone per month in the past, there may only be 50 a month in the next 2 years. So yes if this happens, means at current prices, P/E of these tech stocks are double of what it is in the next 2 years. Tech stocks are still overvalued if this happens.

2008 Oct 28 03:07 AM