UBS Investment Research published a report entitled “US Research” on December 30, 2011. The report isn’t publicly available but we will summarize its key points. In the report, it has listed its top stock ideas for 2012. The list includes UBS’ most-preferred and least-preferred stocks from a wide array of sectors. In this article, we will discuss their least-preferred stock ideas in the Technology sector.
STR Holdings Inc. (STRI) engages in the manufacture and sale of encapsulants to the solar module industry. UBS has given the company a neutral rating. Due to a price decline of 45% in solar modules, companies have seen very small margins by the end of 2011. STR Holdings will be under pressure as the module makers look to decrease their costs. More than 40% of the company’s sales are from its European market, which is operating at depressed utilization rates. Shares of the company are currently trading at $8.7 and are expected to go south of $8.
Computer Sciences Corp. (CSC) provides information technology and professional services. It has been given a neutral rating by UBS. This is mainly on account of problems such as accounting irregularities, lack of transparency, and other one-off issues like the Securities and Exchange Commission’s investigation of the entire company. Consistent problems with the NHS contract have led Computer Sciences Corp. to withdraw its 2012 guidance. Shares of Computer Sciences are currently trading at $23.5 and are expected to reach a price target of $26 per share by the end of 2012. Ray Dalio’s Bridgewater Associates had $44 million in Computer Sciences at the end of September.
F5 Networks, Inc. (FFIV) provides application delivery networking technology. It holds half the market share and has been given a neutral rating by UBS. UBS believes that the stock is a risk investment due to a deceleration of product growth and the company’s weak position in the software space. F5 Networks has significant exposure to a number of volatile markets, making investment a poor choice. Macroeconomic factors may also impact the company negatively. Shares of the company are currently trading at $106.7 and are expected to reach a price target of $110 per share.
IBM Corp. (IBM) provides information technology products and services on a global scale. It has been given a neutral rating by UBS and has gradually transitioned into being a software and services solutions company. According to UBS, its transformation has kept it ahead of its peers but the current valuation of the company is keeping investors away. Revenue growth for the company has been relatively weak and service signings remained lumpy last year. Since IBM is coming off a strong product cycle, its hardware sales are expected to slow down. Shares of the company are currently trading at $182.5 and are expected to go south of $180 per share. It is trading at 12.3x the 2012 earnings per share estimate and generated returns of 27% in 2011. Warren Buffett made a giant bet on IBM in 2011.
Intersil Inc. (ISIL) designs, develops, manufactures and markets analog and mixed-signal integrated circuits. It has been given a neutral rating by UBS. Intersil is expected to face growth challenges in 2012 due to an increase in competition in the consumer and computing markets. It is also expected to face intense competition in the industrial segment. Top and bottom line growth is not likely to increase due to a lack of exposure to growth markets. Shares of the company are currently trading at $10.3 and are expected to reach a price target of $11.
RF Micro Devices (RFMD) designs, develops, manufactures and markets radio frequency components and semiconductor technologies. UBS has given it a neutral rating and believes that the company will face significant growth challenges in 2012. RF Micro Devices continues to rely on a narrow base of baseband providers, keeping its stock from trading outside its range. The company’s 3G business needs to show significant growth due to a large reliance on the failing market of featured phones. Shares of the company are currently trading at $4.5 and are expected to reach a price target of $6.75 per share.
Qlik Technologies (QLIK) engages in the development, commercialization and implementation of software products and related services. UBS has given Qlik Technologies a neutral rating despite the market niche the company has created for itself. With more than 55% exposure to the European markets and around 60% exposure to non-recurring revenues; UBS believes that the company will face significant risks in 2012. Qlik is also trading at higher multiples than its peers. Shares of the company are currently trading around $23 and are expected to reach a price target of $29. Qlik is trading at 4.5x its enterprise-value-to-sales ratio.
Research in Motion Limited (RIMM) is a designer, manufacturer and marketer of wireless solutions for the global mobile communications market. UBS has given the company a neutral rating due to a number of reasons. The most important was that in the last earnings call, the company did not tell investors how it is planning to stabilize and transform its business. The relatively little success of its BB7 gave rise to risks in unit shipments and its BB10 devices are not likely to increase market share. The company’s management has lost a significant amount of credibility and it is not expected to change. Earnings of the company are under pressure whenever the company decides to revive its brand name in the U.S. Shares of the company are currently trading at $15.3 per share and are expected to reach a price target of $15.5. Leon Cooperman made a contrarian bet on RIMM during the third quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.