UBS Investment Research recently published a report entitled “U.S. Research” on December 30, 2011. It isn’t publicly available but we will summarize its main points. The report lists their top stock ideas for 2012. In this article, we will discuss their most-preferred stock ideas for the Technology sector.
LAM Research Corp. (NASDAQ:LRCX) designs, manufactures, markets and services semiconductor processing equipment. It has been given a buy-rating by UBS. The company is looking to benefit from the NAND+ Foundry capital expenditure spending, which accounts for 80% of the company’s sales. The increased demand for solid state drives, tablets and smart phones is also likely to benefit the company. LAM Research is going to acquire Novellus, giving a potential upside to its earnings per share from $0.2 to $0.4 by the end of the year. The deal between the two companies is expected to result in synergies of over $100 million, along with a separate $100 million expected investment in research and development. Shares of the company are currently trading at $37.8 and are expected to reach a price target of $50 per share. The price target is based on a 12.5x price-to-earnings multiple. The company is currently trading at 2x its book value. David Tepper had $34 million invested in LAM Research at the end of September.
Cognizant Technology Solutions (NASDAQ:CTSH) provides information technology, consulting and business process outsourcing services. UBS has given the company a buy-rating because it is the “best growth story” in its market segment with significant potential for future growth. UBS is of the opinion that Cognizant Technology Solutions will continue increasing its market share because of an expanding industry while UBS believes that the current share price does not reflect these growth opportunities. Shares of the company are currently trading at $66.4 and are expecting to go north of $87 per share, indicating a share price increase of 31%.
ADTRAN Inc. (NASDAQ:ADTN) is a designer, manufacturer and marketer of services network access solutions enabling voice, data, video and Internet communications. UBS has given the company a buy-rating because it believes that the company is continuing to diversify away from Tier 1 carriers. The company recently acquired NSNs Broadband Access business, giving it a potential to increase gross margins and earnings per share. Shares of the company are currently trading at $29 per share and are expected to reach a price target of $40, indicating a potential share price increase of 38%.
Dell Inc. (NASDAQ:DELL) provides integrated technology solutions in the information technology industry. The company has been given a buy-rating by UBS. Dell is changing its structure to a solutions-based company and is also getting rid of its low-margin businesses. This move has helped it increase its profitability and has helped improve its balance sheet. UBS is of the opinion that this change is likely to result in higher sustainable margins, increased revenues, and further expansion. Shares of the company are currently trading at $15.3 per share and are expected to go north of $19. This price target is based on 8.9x the 2013 earnings per share estimate. In 2011, the company returned around 9%. Whitney Tilson is very bullish about Dell.
SanDisk Corp. (SNDK) designs, develops, manufactures and markets NAND-based flash data storage card products. UBS has given SanDisk a buy-rating because of the secular growth in the NAND flash memory industry. The increasing demand for solid state drives and embedded applications in ultrabooks is also going to add to SanDisk’s growth. The company is currently the industry leader giving it a cost advantage. As demands for OEM in handsets and embedded NAND in smart phones, ultrabooks and notebooks continues to rise, SanDisk is going to continue to benefit in the near future. Shares of the company are currently trading at $49.9 and are expected to reach a price target of $62, indicating a potential increase in share price of 24%. Also, SanDisk is trading at 6.7x its price-to-earnings ratio.
Qualcomm Inc. (NASDAQ:QCOM) designs, develops, manufactures and markets digital telecommunications products and services. It has been given a buy-rating by UBS. With the increase in the adoption of smart phones, UBS believes that Qualcomm is in the best position to benefit. UBS is also of the opinion that the significant increase in chipset revenue and robust growth of the smartphone market will mark the inflection point for Qualcomm in 2012. An increase in the demand of 28nm integrated products is likely to help Qualcomm widen its market share and technology lead. Shares of the company are currently trading around $56 per share and are expected to go south of $70, indicating a potential share price increase of 25%. Qualcomm generated returns of around 11% in 2011. Qualcomm is one of the 10 most popular stocks among hedge funds (see the complete list).
Tibco Software Inc. (NASDAQ:TIBX) provides middleware and infrastructure software on a global scale. UBS has given the company a buy-rating and placed it on the most-preferred list of the software sector. According to UBS, the company is an attractive merger and acquisition candidate with significant opportunities to sell a wide-range of products. Shares of the company are currently trading at $23.8 per share and are expected to reach a price target of $32. Tibco is trading at 3.2x enterprise value to sales ratio and it generated returns of around 23% in 2011.
Avnet, Inc. (NYSE:AVT) is a distributor of electronic components, enterprise computer and storage products. It has been given a buy-rating by UBS. Avnet’s supply chain will likely benefit from any demand recovery and the bottoming of the semiconductor cycle will re-accelerate earnings growth. Mergers and acquisitions are going to play a greater part in the company’s future, giving it incremental revenue growth opportunities. Avnet, along with Arrow, has the leading market position in a highly competitive market. Shares of the company are currently trading at $31.8 per share and are expected to go north of $37.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.