Seeking Alpha
Profile| Send Message|
( followers)  

2012 has seen one of the best starts for stock markets in past several years. The rally is led by tech stocks with NASDAQ gaining 13.31% YTD versus 8.24% gain of S&P 500 and 5.99% gains of Dow Jones Industrial Average. Here are the five top large cap tech stocks which have significantly outperformed NASDAQ Year to Date.

Ticker

Company

% Price Change YTD

AAPL

Apple Inc.

24%

BIDU

Baidu, Inc.

18%

CRM

Salesforce.com

27%

DELL

Dell Inc.

24%

STX

Seagate Technology PLC

64%

I believe Apple and Dell can be interesting buy candidates among above stocks. However, I would avoid Seagate Technology after the recent run up.

Apple reported excellent quarterly numbers last month beating even the most optimistic estimates. Its guidance was also better than expected with strong momentum in iPhone and iPad sales. Going Forward, Apple has two good catalysts in 2012 in the form of iPad3 and iPhone5 launch. From a medium- to long-term perspective, Apple's secular growth and market share gains in the smartphone and tablet space is likely to continue for the next several years. Apple's strategy of customer-centric innovation and launching products with potential to create whole new markets is still intact. If one goes by Steve Jobs' biography, Apple TV is likely the next such product in the line. At a valuation of just 9x forward earnings (adjusted for cash), Apple is trading at very attractive levels. I believe it is a good opportunity to go long the stock.

Dell Inc. is one of the world`s largest manufacturers of computers, with worldwide PC market share of ~13% and FY11 revenue of $61 billion. The company offers a full range of IT products and services including desktops, notebooks, PDAs, servers, storage systems, printers, and other peripherals, which it primarily sells to customers using a direct model. The company also provides services and resells third-party peripherals and software.

Dell's recent outperformance has raised investor expectations. I believe its results will be up to the mark when it reports Q4 earnings on February 21. Smarter business practices have helped Dell improve its gross margins profile in 2011 and going forward, it is expected to continue as component pricing trends improve along with a shift in the revenue mix towards non-PC and value add solutions. With its enterprise storage better integrated, Dell could be a serious competitor in storage space, which offers long term growth. Dell also announced the creation of a new software group, which I believe is another step towards transforming the company to more of a solution provider. Dell, with its strong balance sheet and cash flow generation could make strategic acquisitions and repurchase shares. All these factors indicate strong medium term outlook with accelerating revenue growth.

Seagate Technology appears to be a good short at current levels. Seagate Technology designs, manufactures, markets and sells hard disk drives. The stock has rallied over 64% YTD due to good results. Supply chain disruptions because of Thai floods helped Seagate a good amount and were primarily responsible for its earnings beat. The flooding has limited HDD supplies and caused an uptick in its ASPs. Seagate's facilities are still dry and operational, and hence it is benefiting from this situation. However, after a 64% YTD jump, Seagate's stock price is already pricing in most of the positives. Going forward, as its competitors recover from flooding in Thailand, I expect Seagate's stock price to underperform.

Source: Top Outperforming Tech Stocks: 2 To Buy, 1 To Avoid