Outperforming Tech Stocks: 2 To Buy, 1 To Avoid

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Includes: AAPL, CRM, DELL, MU, STX
by: Rash Menaria

The following is a list of five technology stocks which have significantly outperformed the broader markets year to date in 2012. Compared to nasdaq's 18% gain since the beginning of this year, all of these stocks have returned north of 35%.

Company Name

Ticker

YTD Percentage Gain

Apple Inc.

AAPL

48%

Salesforce.com, Inc.

CRM

48%

EMC Corporation

EMC

35%

Seagate Technology Plc.

STX

61%

Micron Technology, Inc.

MU

37%

I believe EMC Corporation and Micron Technology have further upside potential among above stocks. However, I would recommend booking profits on Apple.

EMC Corporation has strong fundamentals and it reported impressive profitability across all its business segments in the last quarter. Going forward, IT spending by various companies is expected to be a primary growth driver for EMC. For 2012, EMC is expecting a modest 3-4% yearly growth in IT budgets. I believe this guidance is conservative given the management's history. While eurozone IT spending is expected to be flat, I am of the opinion that emerging markets in Latin America and Asia could very well grow above expectations. Data growth and virtualization needs are the key areas which are expected to outgrow the overall IT industry spending.

EMC is the market leader in the storage space, with over 25% of the market share. There is further room for growth as the proliferation of structured and unstructured data is expected to drive the demand in storage capacity. Increased data center capex by companies such as Apple, Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) indicate a positive trend in cloud computing and related services.

After significant product and channel investments in the past year, EMC's growth will also benefit from product refreshes in all of its segments and new product introductions. EMC has established a stronghold in all the market segments in enterprise storage, with VMAX gaining traction in the high end. Similarly VNX replaced the legacy CLARiiON systems in the mid-range markets, while VNXe is expected to help expand its footprint in lower-end markets. Further, EMC officially released its server flash product VFCache (dubbed Project Lightning) in the first week of February. I believe this is another potential growth opportunity for EMC which it can utilize by integrating it with its existing hardware and software solutions including VMware.

EMC's product breadth with continued updates and market leadership in storage provides a strong foundation for healthy growth in 2012. I recommend a buy on the stock from the near to medium term perspective.

Micron Technology engages in the manufacture and marketing of semiconductor devices worldwide. It is a leading designer and producer of DRAM memory and NAND flash memory and offers foundry services for CMOS image sensors.

Micron recently highlighted that DRAM supply in 2012 should remain controlled as DRAM manufacturers cut production levels and decrease capex guidance. After the recent bottoming out of DRAM prices this should help improve prices. The improving HDD situation bolstering PC demand should also help DRAM prices. Demand for server DRAM also seems positive with improving trends in cloud and Big Data/Fast Data. Further as the DRAM industry consolidates after Elpida's bankruptcy, Micron would be in a strong position in the DRAM market with above 25% market share.

Micron has increased its focus on NAND and SSD and is trying to increases its share in both consumers and the enterprise market with new products and solutions. In addition MU's partnership with EMC Corporation for the VFCache offers further growth potential for MU in the enterprise SSD space. With its diversified business model, a string of new opportunities and DRAM recovery, there is enough upside potential in the near term for MU.

Apple Inc. is one stock in the above list which I will recommend avoiding. 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 which 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.