We think this year will produce some surprising winners in the tech space.
Google (GOOG): Investment Underground thinks Google will be the king of search for a long time to come. We think Google can leverage its significant lead in paid search to target lucrative opportunities in online software and ad sales business lines. A large cash hoard continues to sit on its books which is depressing Google's current multiple. We think the company can make further gains in search market share and reach mid-teens revenue growth from this growth engine. We value shares at $650 apiece with a 10% discount rate.
Apple (AAPL): We've come around on Apple and are willing to admit we were wrong with our $280 per share valuation you can read about here. While we still view market darlings F5 Networks (FFIV) and Amazon (AMZN) as overvalued, we have updated our discounted cash flow model to factor in a larger share of the tablet computer market for Apple. We anticipate worldwide sales of 45 to 50 million, up from our previous 30 million figure. We use a 10% discount rate for the company and peg fair value at $450 per share.
Cisco Systems (CSCO): Cisco has taken a drubbing as of late after reporting another disappointing quarter. We think growth rates will come in at the low end of management targets in the mid-teens. While the company faces some headwinds with budget constraints in the public sector, the company will continue to gush free cash flow from its dominance in data networking. Shares are significantly undervalued, with fair value pegged at $28 per share using a 10% discount rate.
Verizon (VZ): Investment Undergrond thinks this once sleepy telecom has potential to enter a new growth phase as it grabs market share from competitors with its adoption of the iPhone handset. The company should be able to handle the new services demanded by customers, and on a relative basis, outperform its peers. Average revenue per customer should get a shot in the arm over the next few years as Verizon rolls out higher revenue bundled plans and increases smartphone penetration. The company is worth $36 per share discounted at a 10% rate. It's also worth a look for its dividend yield as we outlined here.
Disclosure: I am not short CSCO, I am short CSCO puts.