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Stocks with high growth rates or expected growth rates are usually the best performing stocks in the market. However, this does not mean that investors should only invest in growth stocks or avoid investing in value stocks. As a matter of fact, value stocks on average beat growth stocks historically.

This is not difficult to understand. Investors usually expect value stocks to have low or negative growth rates. Therefore, it is easier for value stocks to beat the expectations. On the other hand, growth stocks usually have challenging growth expectations. Investors usually expect growth stocks to grow at higher rates, and their prices also reflect such high expectations. As a result, it is harder for growth stocks to meet these expectations.

At the end of the article we posted a table that ranked US technology companies based on their expected five-year growth rates. All companies have at least $10 billion market cap. The data is sourced from Finviz. Contrarian investors should focus on the stocks that are at the top of the table. We prefer to invest in stocks with low PE ratios and high expected growth rates.

Wall Street analysts are most pessimistic about AT&T Inc (NYSE:T). Its EPS is expected to grow at 4.05% per year over the next five years, which is barely above the expected inflation rate plus population growth rate. AT&T provides telecommunications services in the United States and worldwide. It has a market cap of $180B and a P/E ratio of 15.44. At the end of the third quarter last year, twenty-seven hedge funds reported to own T in their 13F portfolios. For example, Cliff Asness' AQR Capital Management had $100+ million invested in T at the end of September. Since then, T was up 9.9%, versus 16.92% for SPY in the same period.

Another mega-cap technology stock with high upside potential is Cisco Systems Inc (NASDAQ:CSCO). Its EPS is expected to grow at 9.39% annually over the next five years. CSCO has a market cap of $106B and a P/E ratio of 17.21. Cisco designs, manufactures, and sells Internet protocol based networking products as well as other communications and IT products. For the 13 weeks ending October 29, 2011, the company reported net income of $1.8 billion, versus $1.9 billion for the same period in 2010. Revenue increased from $10.8 billion to $11.3 billion.

CSCO is a popular stock among hedge funds. As of September 30, 2011, there are 57 hedge funds with CSCO positions. Among them, Jean-Marie Eveillard's First Eagle Investment Management had the largest CSCO position. The fund invested $626 million in CSCO at the end of the third quarter last year. Bill Miller's Legg Mason Capital Managemt also had $159 million invested in CSCO. CSCO returned 28.59% since the end of September, beating the market by 12 percentage points.

Another technology stock with high upside potential is Hewlett-Packard Company (NYSE:HPQ). HP provides technologies, software, solutions and services to its customers. For the three months ending October 30, 2011, the company reported total revenue of $32 billion, versus $33 billion for the same period a year ago. Net income also decreased from $2.5 billion to only $239 million. HPQ has a low P/E ratio of only 8.3 and its EPS is expected to grow at 5.63%. There are 43 hedge funds with HPQ positions at the end of September. John Paulson's Paulson & Co had $341 million invested in HPQ. Seth Klarman's Baupost Group also initiated a brand new $466 million of HPQ over the third quarter. HPQ was up 21.48% so far since then, outperforming the market by over 4 percentage points.

We like technology stocks. We think the technology sector is currently an undervalued sector because there are a lot of technology stocks that are trading at attractive multiples. The market is up more than 15% since the end of the third quarter of 2011, and we think the stock market will add to its recent gains. As a result, technology stocks are also very likely to grow with the market.

Ticker

Company

P/E

EPS growth

T

AT&T, Inc.

15.44

4.05%

DELL

Dell Inc.

8.59

4.94%

HPQ

Hewlett-Packard Company

8.3

5.63%

CTL

CenturyLink, Inc.

21.05

5.65%

GLW

Corning Inc.

6.85

5.86%

TXN

Texas Instruments Inc.

14.09

8.47%

MSI

Motorola Solutions, Inc.

21.35

8.50%

AMAT

Applied Materials Inc.

8.49

9.25%

CSCO

Cisco Systems, Inc.

17.21

9.39%

ADP

Automatic Data Processing, Inc.

22.14

9.55%

CA

CA Technologies

13.34

9.60%

ADBE

Adobe Systems Inc.

18.33

9.88%

SYMC

Symantec Corporation

18.85

9.95%

MSFT

Microsoft Corporation

10.23

10.48%

VZ

Verizon Communications Inc.

15.66

10.59%

INTC

Intel Corporation

11.1

10.60%

IBM

International Business Machines Corp.

14.28

10.71%

CCI

Crown Castle International Corp.

94.69

11.00%

ADI

Analog Devices Inc.

14.22

11.20%

ORCL

Oracle Corporation

15.69

12.24%

ALTR

Altera Corp.

15.6

12.75%

TRI

Thomson Reuters Corporation

17.28

12.91%

YHOO

Yahoo! Inc.

19.66

12.94%

MMI

Motorola Mobility Holdings, Inc.

13.00%

ATVI

Activision Blizzard, Inc.

19.28

13.62%

INTU

Intuit Inc.

28.13

14.01%

A

Agilent Technologies Inc.

14.68

14.41%

QCOM

QUALCOMM Incorporated

21.4

14.54%

JNPR

Juniper Networks, Inc.

25.14

14.73%

BRCM

Broadcom Corp.

21.08

15.64%

NTAP

NetApp, Inc.

22.87

15.85%

CTXS

Citrix Systems, Inc.

38.76

16.00%

SNDK

SanDisk Corp.

10.73

16.20%

EMC

EMC Corporation

22.93

16.43%

AAPL

Apple Inc.

15.46

18.17%

CTSH

Cognizant Technology Solutions

25.58

18.96%

GOOG

Google Inc.

21.8

19.00%

CERN

Cerner Corporation

37.28

19.50%

NLSN

Nielsen Holdings N.V.

20.76%

AMT

American Tower Corp.

91.47

20.93%

VMW

VMware, Inc.

58.54

25.67%

CRM

Salesforce.com

5725.5

25.84%

GRPN

Groupon, Inc.

28.33%

Source: Top Tech Stocks With The Best Upside Potential