Tough Times Ahead for Big-Cap Tech

This column was originally published on RealMoney on Dec. 18 at 2:03 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

It could be a year of limited upside ahead for big-cap tech.

According to my model, tech stocks with market caps of more than $50 billion could decline 15% to 40% over the next three years. Overvalued stocks should decline to their fair values, and those that are now undervalued probably won't get to their fair values. As the table below will show, ValuEngine rates them all a hold.

For those readers unfamiliar with my screening methods, I like stocks that are rated strong buy or buy according to ValuEngine, with strong buys at least 10% undervalued and buys at least 20% undervalued. This usually occurs when a stock is trading lower toward a value level from my model. When stocks rise and become fundamentally overvalued and technically overbought, I look for risky levels at which to book profits on strength, or suggest protective strategies such as sell-stops, given a weekly close below the stock's five-week modified moving average.

So let's take a look at some individual names in big-cap tech.

Apple (AAPL Quote): Despite the holiday sales hype surrounding iPods and iMacs, this stock can't climb to my quarterly risky level at $93.98. It declined 40% in the first seven months of 2006, and a similar decline looks likely over the next three years.

Cisco (CSCO Quote): This stock is trying to return to its January 2004 high of $29.39. If it does, it will be on pure technical momentum. Even with this strength, Cisco's downside risk is 30% over the next three years.

Dell (DELL Quote): It tested my quarterly risky level at the end of November, and it should have a tough time reaching its fair value at $31.60. A laggard in 2006, Dell's downside is 15% over the next three years.

Google (GOOG Quote): This stock achieved its fair value when it tested $513 on Nov. 22. My model shows risk of a 30% decline over the next three years.

Hewlett-Packard (HPQ Quote): A month ago, the stock tested $40.85 and has been moving sideways to down since then. The downside is 25% over the next three years.

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