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David Einhorn is the Founder and President of Greenlight Capital - a value-oriented investment advisor. The firm manages the Greenlight Capital series of hedge funds and the assets of a reinsurance company, Greenlight Capital Re, Ltd. The firm has offices in New York and London.

Greenlight Capital is a value-oriented investment manager and buys securities trading materially lower than their intrinsic values. The firm employs a bottom-up approach emphasizing fundamental analysis, aiming to achieve high absolute rates of return, while minimizing the risk of capital loss. In this article, I take a closer look at five top technology stocks (see table below) that Green light capital is holding, according to its latest 13F filing with SEC.



Shares Held - 12/31/2011

Microsoft Corporation



Marvell Technology Group Ltd.



Seagate Technology Plc.



Sprint Nextel Corporation



Apple Inc.



Below, I detail company-specific discussions on each of the stocks, and my views on their prospects:

Microsoft Corp.

Microsoft Corp. has seen a positive breakout on the upside from its last two-year trading range. It is currently trading at a forward P/E of 10x. I believe Microsoft is a good medium-term investment. Its cash cushion limits the downside, as well as enables it to make opportunistic acquisitions. In addition, Microsoft is also taking a lot of new initiatives, which can drive meaningful growth over the next few years.

Some of the major catalysts for the stock are the Windows 8 launch, Office 365 gaining traction, and a successful adoption of Nokia (NYSE:NOK) WP7 phones. I think Microsoft offers attractive risk/rewards for investors looking to hold the stock for the next one year.

Marvell Technology Group Ltd.

Marvell's near-term fundamentals are improving and the company remains well-positioned for growth in the current year. The company's management guided for flat to up 6% sequential revenue growth for Q1FY13, driven by mainly by storage (post-flood HDD recovery, 2.5" 500GB/platter HDD ramps) and networking (PON, Romley server transition). The company's guidance assumes 10%-20% growth in HDD, and it may prove conservative given industry expectations for 20%-30% increase in HDD production. I recommend buying Marvell, given its market leadership position in HDD (~60% share), low valuation of ~10.7x forward PE, and the possibility of an upward revision in its earnings estimates.

Seagate Technology Plc.

Seagate is trading at just 3x forward PE, despite the consensus expectations for record results in fiscal 2012 and 2013. The main concern for investors is that Seagate could post inflated results in the near term (FY12 and FY13) because of Thai flood, and that they cannot be sustained in the long term. Although this may be a partially correct assumption, I believe investors are missing the fact that some of the changes in the industry and the company are permanent. For example the WDC-HGST deal is likely to close in the next two-three months, and with only three major players, the industry will have much more rational pricing. Also, Seagate's management has indicated its desire to lower share count by ~25% to 350M by the year-end, thereby returning a good amount of cash to shareholders.

For FY12 and FY13, consensus EPS estimates stand at $6.24 and $8.85 for the company. The stock is currently trading at ~$26. I believe the company can post a normalized EPS of $6 in the long term, thanks to rational pricing after industry consolidation and share buybacks in the current year and the next year. Even after more than doubling from its October lows, the stock looks very cheap at the current level and I would recommend buying it.

Sprint Nextel Corporation

In addition to a significant debt burden, Sprint is also facing a lot of operational challenges. I am most concerned about Sprint's unclear 4G strategy. Sprint's stated plans to deploy LTE on 5x5 MHz of PCS spectrum seem inadequate, while Clearwire's (CLWR) plans to install LTE on 8,000 cell sites would address only a fraction of Sprint's nationwide subscriber base. Sprint doesn't have enough free-and-clear spectrum required to launch a competitive LTE network, and it doesn't have the money to clear spectrum that's already in use. Thus Sprint will become uncompetitive once LTE assumes national de facto status. With the LTE iPhone expected to arrive this year, I believe Sprint's problems are likely to increase going forward.

Apple Inc.

I will recommend avoiding Apple Inc. Apple is a good company and its business fundamentals are going in the right direction as it continues to gain market share in the fast growing smart phone and tablet space. However, I am a bit skeptical on the stock after its recent run-up. I believe most of the positives are now already priced into the stock. Going forward, my key concern with the stock is declining iPhone sales in the coming quarters, as I have described in a previous article. I have a neutral rating on the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: David Einhorn's Top Tech Picks: 3 To Buy, 2 To Avoid