Top Technology Companies With the Highest Upside Potential

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 |  Includes: ADI, ALTR, AMAT, ATVI, AVGO, CA, CSCO, DHR, EMR, ETN, GLW, HPQ, IBM, INTC, INTU, MSFT, MSI, ORCL, QCOM, TEL, TXN, XRX
by: Insider Monkey

The best performing stocks in the market are usually the highest growing stocks or the stocks with the highest expected growth rates. This doesn’t mean that one should invest in only growth stocks and stay away from value stocks. Historically value stocks beat growth stocks hand over fist. The reason is simple: value stocks are beaten down stocks with very low or negative growth expectations. Not surprisingly it is easier for these stocks to beat expectations on the average. On the other hand, people are extremely bullish about growth stocks and expect them to have higher growth rates in the future. Their stock prices also reflect this fact. Not surprisingly, it is more difficult for these stocks to beat these challenging expectations.

We ranked technology companies based on their expected five-year growth rates. These stocks are at least $10 Billion in market cap. The data source is Yahoo Finance. Contrarian investors should look into the stocks that are at the top of the table.

Company name

Symbol

Market cap

Forward PE

Expected 5-Year Growth Rate

Hewlett-Packard

HPQ

48.02B

5.07

8.59

Cisco Systems

CSCO

87.70B

8.62

9.07

CA

CA

10.44B

8.76

9.22

Microsoft

MSFT

215.27B

8.25

9.38

Motorola Solutions

MSI

14.68B

15.49

9.68

Texas Instruments

TXN

32.59B

11.92

10.55

Analog Devices

ADI

10.18B

12.47

10.75

TE Connectivity

TEL

12.59B

8.77

10.83

Corning

GLW

20.58B

6.49

11.00

Intel

INTC

120.26B

9.23

11.12

IBM

IBM

213.17B

12.14

11.35

Eaton Corp.

ETN

12.99B

8.32

12.24

Activision Blizzard

ATVI

13.86B

13.12

12.26

Intuit

INTU

14.75B

14.98

12.48

Applied Materials

AMAT

14.47B

11.06

13.01

Oracle

ORCL

153.08B

11.48

13.35

Emerson Electric

EMR

33.28B

12.16

13.66

Danaher

DHR

30.72B

13.79

13.93

Broadcom

BRCM

18.93B

11.34

15.12

Altera

ALTR

11.73B

13.93

15.14

QUALCOMM

QCOM

87.62B

15.09

15.88

Xerox

XRX

10.79B

6.36

20.52

Click to enlarge

HPQ has a very low P/E ratio. John Paulson has more than $855 million in HPQ. D.E. Shaw and Ray Dalio increased their holdings of HPQ during the second quarter.

There are other technology companies trading at lower prices because of low expected growth rates, like CSCO and MSFT. One of the stocks hedge funds are extremely bullish about is CSCO. Steven Cohen and D.E Shaw increased their CSCO holdings during the second quarter. Ken Griffin also has CSCO in his portfolio. Jim Simons initiated a brand new $3.5 million position in CSCO.

Another stock that hedge funds heavily invested in during the past few months is MSFT. Seth Klarman initiated a brand new $312 million position in MSFT. Ken Fisher holds more than $460 million in MSFT shares. D.E Shaw holds more than $120 million in MSFT shares. David Einhorn increased his position in MSFT by 63% and held a $385 million MSFT position at the end of June.

INTC is also a promising stock. Ken Fisher has a $431 million position in INTC. Jim Simons and D.E. Shaw increased their holdings in INTC and held $280 million and $107 million, respectively, in INTC shares at the end of June. Tom Gayner increased his holding in INTC by about 7-fold.

Usually stocks with higher expected growth rates trade at much higher multiples. Some of the stocks with higher expected growth rates on our list have very attractive multiples. XRX, ETN, INTC and GLW deserve a closer look. Insiders are getting bullish about some of these stocks as well.

Disclosure: I am long MSFT.