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(Updates story to add that Broadcom boosted its fourth-quarter outlook.)
Goldman Sachs(GS) spotlights nine information-technology companies for the latest "Conviction List" for the Americas, its most promising stock picks.
Tech stocks have historically been among the leaders in market rebounds. The investment banking firm's analysts see their choices with upside potential of 13% to 32% in the coming year, even though its market strategists expect a volatile, yet flat, performance by the broader market through 2013.
Goldman's economic strategists have a relatively bleak outlook for 2012, calling for a little-changed
S&P 500 Index and U.S. economic growth of only 1.5% as the markets continue to be whipsawed by the still-unsettled European debt crisis threatening a recession there and a slowdown here.
But information-technology stocks are already on the move. The S&P 500 is down 1% this year, but IT stocks are up 2.6%, including a gain of 9.7% so far in the fourth quarter.
Goldman's equity strategists recommend a 20% portfolio weighting to technology, by far the largest of any sector, with financials a distant second at 13%. The strategists say defensive sectors, including IT, "should outperform given the weak economic backdrop."
S&P Capital IQ's analysts are also bullish on the information-technology industry. In the firm's 2012 outlook, it recommends an "overweight" to the sector, in part based on the premise that companies have been putting off IT spending and so "in order to maintain their profit margins and competitive positions within their sectors, (it) will require an elevated level of IT spending."
S&P also said that in rebounds following "bear" or near-bear markets, which had been seen into the third quarter of this year, information-technology shares outperformed the broader market 80% of the time, with an average increase of 30% within six months of the market's bottom. Stocks bottomed out during October, when the S&P 500 dropped to 1,100.
S&P IQ says of IT: "We see the sector outperforming as a challenging growth environment drives continued enterprise-level productivity improvements, which we don't think are fully reflected in very low valuations."
But on a down note, Gartner, an IT research firm, just slashed its worldwide semiconductor revenue forecast for 2012 in half, citing broad uncertainty for the market due to the troubled European markets and unpredictable consumer spending. It sees sales up 2.2% in 2012, versus its earlier projected 4.6% growth.
Goldman's "conviction buy" list last year had eight stocks and only one, talent-management software firm
SuccessFactors(SFSF), beat its price target. Its biggest misses were
Broadcom(BRCM), a semiconductor maker that is at $29 versus Goldman's target price of $52, and
Juniper Networks(JNPR), trading at less than half of its $44 target.
But things are looking up for Broadcom (BRCM) which today boosted its outlook for the fourth quarter, saying it expects revenue at the high end of its October projection of $1.7 billion to $1.8 billion and that its margins will be flat with the third quarter, compared with its earlier estimate for margins to be down slightly to flat.
That positivity contrasts with that of fellow chip companies, many of which recently lowered their expectations, most prominently Intel Corp. (INTC) which warned Tuesday that its fourth-quarter revenue would be $1 billion below its prior estimate.
Three stocks, iPad and iPhone maker
Apple(AAPL - Get Report), business-software company
Oracle(ORCL - Get Report) and telecommunications-products maker
Qualcomm(QCOM - Get Report), were on the list last year and again this year. They each are trading short of their 2011 price target -- Apple and Oracle each by about 13%, and Qualcomm by 7%.
This year's picks include several stocks that show up on many "buy" lists, including credit card processor
Visa(V - Get Report) and the ubiquitous Apple, one of the world's most widely held companies.
In inverse order of potential upside appreciation, here are
Goldman Sachs' nine 2012 technology sector stock picks with their 12-month price targets: