6 Technology Stocks To Consider, 1 To Avoid

by: Chris Lau

Keen to shake off flat returns in 2011, the S&P 500 moved towards 5-month highs. In the last two trading weeks of 2011, the short position on the Nasdaq composite was steady for a number of the most actively traded technology stocks.



Short Shares

Dec. 30 2011

Share % Change

from Dec. 15 2011


Intel Corporation




Microsoft Corporation




Cisco Systems, Inc.




Oracle Corporation




NVIDIA Corporation




eBay Inc.




Electronic Arts Inc.



After Sirius XM Radio (NASDAQ:SIRI) at 301.38M shares, Intel Corporation (NASDAQ:INTC) was the second most-shorted company on the exchange.

[1] Intel - Buy

Intel is trading at close to a 52-week high at $25.14. Shares broke an established trading range of between $19.00 and $23.00. Investors are paid $0.84 in dividends, or a yield of 3.26% per year. The old story that PC sales were on the decline and a lack of growth in smart phones did not dissuade investors from trading Intel to new highs.

Intel is a "buy" because Ultrabooks will renew interest for consumers and for businesses to upgrade. More importantly, Intel is mounting the 'biggest advertising campaign since 2003' for Ultrabooks. The company simply needs to convince consumers that tablets are consumption devices, but that ultrabooks have a keyboard, better battery life, and lighter weight compared to laptops.

[2] Microsoft's (NASDAQ:MSFT) - Buy

Microsoft's plans to release Windows 8 will also help the Intel and the PC market in 2012. Windows 8 will be released this year in October.

Microsoft's money-losing search engine, Bing, beat Yahoo (YHOO) in search requests. In December, 2.75 billion search requests were made. This is 15.1% of the search traffic, compared to 14.5% for Yahoo.

Microsoft shares saw an increase in shorts on December 30, up 67.8M or 22% from December 15. Microsoft will report Q2 earnings on January 19 2012. Since a strong result is not expected, investors might want to add a position in Microsoft after the earnings date.

[3] Cisco Systems (NASDAQ:CSCO) - Avoid

Up 45% from a 52-week low and just 13.42% from its 52-week high at $19.06, Cisco shares saw a decline in shorts by 6%, to 63.6M. Despite warnings from Juniper Networks (NYSE:JNPR), Cisco did not sell-off.

Many challenges remain for Cisco: corporate and government spending is shrinking. Cisco reaffirmed its strong relations with customers, which supports the company's P/E of 16.57.

[4] Oracle Corporation (NYSE:ORCL) - Buy

After reporting a weak quarter in December, Oracle fell $6 from a December-high of $32. Shares closed recently at $27.34 and trade at a P/E of 15.02. Two things to watch for with Oracle is its competition with SAP (NYSE:SAP) and the health of supply chain management software. SAP's HANA product uses in-memory analytics. Oracle's TimesTen database works with Exalytics to do in-memory analytics.

JDA Software's (NASDAQ:JDAS) recent earnings warning may suggest Oracle will also face challenges in 2012 for closing deals with customers.

[5] NVIDIA Corporation (NASDAQ:NVDA) - Buy

Short-sellers reduced their bearish bets on Nvidia between December 15 and 30 as shares last traded at $13.73. The short position was 19.34M shares. Android-based tablets are facing a tough challenge against Apple's (NASDAQ:AAPL) iPad 2. This means investors will be less willing to pay a premium for growth in NVidia Tegra 3 processor sales. Advanced Micro Devices (NASDAQ:AMD) also released a competitive Radeon graphics card for the desktop.

The smart phone space is still in a growth phase, and NVidia is still a stronger player in this space. NVidia shares are a "buy."

[6] eBay Inc. (NASDAQ:EBAY) - Buy

Short-selling increased 4% to 12.93M shares and closed at a mid-point of $31.58 on January 12. EBay trades at a P/E of 22.35 after closing at $30.62 and is up over 3% for 2012 despite the loss of its PayPal executive.

EBay's shares are relatively cheap in comparison to Amazon (NASDAQ:AMZN) and Salesforce (NYSE:CRM). The value of EBay is in its Paypal division. Most recently, Paypal handled $4B in mobile payments in 2011, compared to 750M in 2010.

EBay is a "buy" because the value of secure, mobile payments processing is not being recognized in its share price.

[7] Electronic Arts Inc. (NASDAQ:EA) - Buy

Bearish bets proved correct as short shares increased to 16M, up 9% on December 30. EA peaked in November at $25, and dropped a further $1.47 (7.53%) on January 13. EA is now down 30.96% from its 52-week high after closing on January 13 at $18.04.

Shares rallied from August 20011 lows because of investor enthusiasm over hot initial public offerings (or IPOs) from companies like Zynga (NASDAQ:ZNGA).Yet in recent trading weeks, Zynga's weak share performance illustrated the lust for social gaming ended by the start of this year. AllThingsD reported that Americans played all but social games during the holidays.

Most recently, Zynga poached top talent from EA, hiring Barry Cottle, an EVP in EA's interactive division.

EA fell on Friday January 13 because NPD, a market research firm, reported that sales in December 2011 dropped to $3.99B. This is a drop from sales of $5.07B in December 2010. Still, EA is a "buy" because two of the top 10 selling titles are from EA: "Battlefield 3" and Madden NFL12. "Star Wars: The Old Republic" and is also expected to do well in 2012.

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

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