Goldman Tech Picks List: Weak on Growth But Good on Value and Shorts

Since September 2005, the Goldman Sachs (GS) tech analysts have been maintaining lists of their five favorite growth and value ideas, as well as their five least favorite stocks, aka, short ideas. Goldman refers to the lists collectively as its “Technology Investment Framework.” The lists are proving to be a fertile place for finding good value and short ideas, but not nearly as good for growth picks.

Since inception, Goldman reported in a research note this morning, the basket of five value picks is up 40.1%, compared to increases of 8.6% for the S&P 500 and 12.4% for the Nasdaq Composite. The basket of five growth picks has been a lot less successful: it’s lost 1.1% since inception. On the other hand, the basket of “least favorite” ideas is have dropped a whopping 35.1% since inception; short-sellers ought to pay attention to their choices.

The current five stocks on the growth list include Apple (AAPL), Cisco (CSCO), Intersil (ISIL), Qualcomm (QCOM) and Xilinx (XLNX). The company added QCOM and XLNX today, replacing Fidelity National Information Services (FIS) and Research In Motion (RIMM). (One odd note: while RIMM was on the list a month ago, today’s note never actually says why they removed RIMM , or in fact mentions the company at all; it simply mentions “open slots created by our internal stop-loss discipline” and the removal of Fidelity National. Finding that it was removed required some detective work, comparing this note with the last one written on the list.)

The five value picks now include: Analog Devices (ADI), CA (CA), Hewlett-Packard (HPQ), Lam Research (LRCX) and Satyam (SAY). The new addition here is Lam, which replaces Xilinx, which moves to the growth list.

The five least favorite picks: Akamai (AKAM), Brooks Automation (BRKS), Riverbed (RVBD), Sun Microsystems (JAVA) and VeriSign (VRSN). Riverbed and VeriSign are new to the list, replacing Applied Materials (AMAT) and Salesforce.com (CRM).

A few comments from Goldman on the changes to the lists:

• Qualcomm: “Our view is that Qualcomm will beat Street estimates over the next 1-2 years.” They see share gains in 3G chipsets, settlement of the Nokia dispute, and expansion beyond the handset market.
• Fidelity National: Goldman still likes the stock, but says that in the near-term, shares are likely to be volatile following the expected spin-off of its Lender Processing Services unit.
• Lam: Goldman upped its rating on Lam just yesterday. They see a possible pick-up ahead in DRAM capex spending.
• Riverbed: “In addition to screening in the bottom quartile across all covered companies in our technology universe, our caution on the shares is based on the continued tough macro environment and increasing competitive pressures.”
• VeriSign: “Valuation levels and economic conditions limit upside from current levels…much of the upside from VeriSign’s restructuring and divestiture of non-core telco businesses has already been priced in, and would need to see incremental growth being created from the core businesses to get more bullish on the stock.”
• Applied Materials: Removed from least favorite list “to make room for ideas where we see more near-term downside.” They do, however, maintain a Sell on the stock.
• Salesforce.com: Goldman says the company is benefiting from the transition to software-as-a-service; they also think it is an attractive takeover candidate. But they keep a Sell rating, noting that the stock is “priced for perfection, with a take-out premium baked in.”

Comments

[steveballmer]

Long term outlook is really bad people, there will ba a liberal in the whitehouse, $6 gas, more illegals, .... things look bad for all but microsoft!

[shamsoftabriz]

Remember last time a liberal was in the white house...tech went wild, oil
dropped to 12 a barrel and the economy soared. I'll take all that.