BOSTON ( TheStreet) -- Technology stocks in the S&P 500 have generated an average gain of 16% in 2010, ranking as the third worst-performing industry group. But as the recovery ramps up next year, tech stocks may lead, analysts say. Value-focused Morningstar covers hundreds of technology stocks, but awards its highest five-star rating to only four.
Here is a closer look at those four technology value stocks. They are expected to rise at least 53% and as much as 99%. Below, the stocks are ordered by potential return, from great to colossal.
4. Dow component Cisco Systems (CSCO - Get Report) makes networking equipment. It holds the dominant position in ethernet switches, with roughly 70% market share, a stable figure. It is also the leader in routers, with Juniper (JNPR) grabbing second place.
Morningstar believes that Cisco's growth forecast, at 12% to 17% long-term, is too aggressive and its movement into the mature blade-server market is ill-advised, potentially threatening important tech partnerships with little chance of profit growth.Still, at a forward earnings multiple around 10 and a cash flow multiple of 11, 43% and 37% industry discounts, Cisco is grossly undervalued. If management can avoid overpaying for acquisitions and focus on gaining market share in emerging and frontier markets, Cisco's stock will benefit enormously. Morningstar estimates Cisco's intrinsic fair-value at $30. 12-Month Sales Growth: 20%
12-Month Net Income Growth: 38%
Operating Profit Margin: 22%
Debt-to-Equity Ratio: 0.3
5-Year Average P/E: 20
Current P/E: 15