Technology is one of our most favorite sectors right now. We like both the old technology stocks like Microsoft (MSFT), Dell (DELL), Intel (INTC), and Hewlett-Packard (HPQ) which are almost written off by investors and trade at historically low multiples. We also like Apple (AAPL) which is spearheading the revolution that is disrupting the business models of old technology stocks because it also trades at a huge discount compared to low growth stocks like ConEd (ED), Verizon (VZ), and AT&T (T).
Goldman Sachs (GS) recently updated its list of technology stocks with high price appreciation potential over the next six months. Here are the technology stocks that are in Goldman Sachs’ "conviction buy" list:
Apple Inc. (AAPL): The iPad and iPhone maker returned 18% so far in 2011. AAPL is trading at about $381. Goldman Sachs expects AAPL’s share price to grow 38% in the next 6 months, and consensus analyst opinion indicates that the stock will have an EPS growth rate of 22% in the next five years. AAPL does not pay any dividends and it trades at a forward P/E of 10.95. One third of the hedge funds we track invested in AAPL in the third quarter. The biggest hedge fund position belongs to Ken Griffin, whose Citadel Investment Group had 2.43 million shares in AAPL.
EMC Corporation (EMC): EMC is an information and data storage specialist. The stock is trading at around $22.30, and is given a $29 target price by Goldman Sachs. EMC slumped in August and is almost breaking even in 2011. The stock has a forward P/E of 18.23 and an expected EPS growth rate of 16%. It pays no dividend. Ken Fisher’s Fisher Asset Management had 21.94 million shares in EMC in its portfolio, while Bain Capital’s Brookside Capital had 15.81 million shares at the end of September.
Oracle Corporation (ORCL) The enterprise software company is now trading at about $29, and is expected to reach $39 in the next 6 months. ORCL has lost 6% year to date. The stock currently trades at a forward P/E of 12.52 and an expect EPS growth rate of 15%. Ken Fisher’s Fisher Asset Management was its largest hedge fund stakeholder. The firm held 20.47 million shares in ORCL since the second quarter.
Qualcomm Inc. (QCOM) gets a $65 target price from Goldman Sachs. The stock is now trading at $52.61, up 7% in 2011. It has a 16.32 forward P/E and a 15% expected EPS growth rate. In addition to its upside potential, the stock has a 1.60% dividend yield. Among fifty eight hedge funds that had QCOM in their portfolios in the third quarter, Stephen Mandel’s Lone Pine Capital had the largest chunk. The firm increased its position by 17% and reported to own 7.22 million shares at the end of September.
Visa Inc. (V): Visa is a global payments technology company. The stock might be a defensive choice with its 0.51 beta. It’s now priced at $97.44 while Goldman Sachs predicts a $110 target price. The stock has earned 40% so far in 2011. It trades at a forward P/E of 16.88 and an expected EPS growth rate of 16%. Additionally, the company pays a 0.9% dividend yield. John H. Scully’s SPO Advisory Corp owned the most in Visa Inc. during the third quarter, with 7.37 million shares. Besides, Warren Buffett's Berkshire Hathaway initiated a new position of 2.29 million shares in the company in the third quarter.
VMWare Inc. (VMW) VMWare is the largest virtualization solutions provider. More than 80% of the company is owned by EMC. VMW has slightly lost 4% in 2011. The stock is trading at about $85, and it received a $125 price target from Goldman Sachs. VMW currently has an extremely high forward P/E of 56.78,. VMW’s third quarter revenue jumped 32%, and its net income doubled. Jim Simons’ Renaissance Technologies had 831 thousand shares in the company by the end of September.
Other technology companies included in the list are Aeroflex Holding (ARX), NCR Corporation (NCR), and Synchronoss Technologies, Inc. (SNCR). These are small-to-mid cap stocks. Overall, these technology companies pay little or no dividend.