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BOSTON (TheStreet) -- In an accelerating economic recovery, technology stocks tend to outperform. But the popularity of the sector is deterring many investors. Momentum technology stocks, such as F5 Networks (FFIV) , which plunged 23% last week, are volatile. Still, technology is the highest-rated U.S. sector for 2011, based on analysts' mean ratings. Researcher Jefferies favors the following six stocks, which it expects to outperform the market over 12 months. Below, they are ordered by predicted upside, from plenty to most.




is the world's largest software company. It is a safe technology investment because of its discount valuation and resilient customer base. The Dow component sells for a trailing earnings multiple of 10, a forward earnings multiple of 10, a sales multiple of 3.7 and a cash flow multiple of 9.2, 66%, 55%, 69% and 51% discounts to software industry averages. The stock's PEG ratio, its trailing P/E divided by analysts' long-run growth forecast, of 0.7 reflects a 30% discount to estimated fair value. Its trailing P/E of 11 represents a 32% discount to the five-year average. A 41% operating margin ranks in the 98th percentile for the software industry.

Jefferies is bullish on Microsoft, rating it "buy" with a $33 target, implying 16% of upside in the next 12 months. The bank's last research note applauded the company's move to make future Windows versions compatible with ARM-based systems, those used by low-power electronics devices, including smart phones and tablets. Microsoft is also working to build support for other applications, including Office and Quicken, to run on ARM chips. The company provided a 24 to 36 month cycle for the release of its next Windows version, so this update won't have a near-term impact on results. Microsoft also disclosed that eight million Kinect devices sold in 60 days, easily beating Jefferies' forecast for five million units. Kinect is a hands-free add-on for the Xbox 360 gaming console.


Marvell Technology


is a semiconductor company, designing chips for storage and broadband markets. It also has sizable market share in Ethernet, wireless LAN and handsets. Jefferies expects the company to grow its business in 2011, helped by share gains at partners, including

Research in Motion





, as well as "processor wins in gaming, printers, e-readers, tablets and handsets." Marvell's stock has risen just 6% in 12 months, trailing U.S. indices, but it has delivered annualized gains of 23% over three years.

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In the third quarter, Marvell's sales advanced 19% and its net income increased 27%, signaling strong business momentum. Its gross profit margin narrowed from 65% to 62%, but still ranked in the 80th percentile of the semiconductor industry. Its shares are a bargain compared to peers', costing a trailing P/E of 15, a forward P/E of 12 and a cash flow multiple of less than 11, 30%, 25% and 37% industry discounts. Jefferies is among many researchers optimistic about Marvell. Of analysts covering its stock, 29, or 78%, rate it "buy", eight rate it "hold" and none rank it "sell."


offers the highest target, expecting a 45% rise to $29.


Concur Technologies


is a niche software company, focusing on the business travel market. Its programs track employee expense purchases, ensuring accuracy and validity, reviewing the charges and then reimbursing employees, all through a mobile application. Its different software offerings are sold to small-, medium- and large-businesses. In the past three years, Concur has grown its revenue 31%, annually, on average, and amplified net income 36% a year, on average. On Jan. 13, Concur announced plans to acquire


, a provider of mobile trip management solutions, for $82 million.

TripIt's revenue is modest and the deal will hamper the operating margin. Still, it offers a growth venue. Jefferies believes that Concur will "be able to achieve the growth acceleration that management implies for 2011, which will be a scarce asset." Its $58 target suggests a one-year gain of 22%. However, the stock is priced for growth, commanding a forward P/E of 46 and a cash flow multiple of 34, 96% and 77% premiums to software industry averages. Jefferies is among the few bulls on Concur. Just six, or 24%, of researchers in coverage rate the stock "buy."

Goldman Sachs

, ranking it "neutral", offers a lofty $65 target.


VanceInfo Technologies

( VIT) is an IT services company and software developer in China with onshore and offshore locations. Jefferies, though cautious about the stock's valuation, is optimistic about its prospects. The stock trades at a trailing earnings multiple of 53, a forward earnings multiple of 35 and a book value multiple of 7.5, 50%, 51% and 43% discounts to software peer averages. Still, Jefferies believes "the secular trend outweighs short-term valuation issues." It refers to VanceInfo as a "hyper-growth" story, expecting 40% expansion in 2011. Clients include


, networking and telecom equipment-supplier


and recently-added Hong Kong airline

Cathay Pacific


The downside, in Jefferies' view, is near-term margin deterioration. In the third quarter, the gross margin fell from 42% to 40% and the operating margin deteriorated from 16% to 13%. Yet, the top line grew 40%, net income gained 34% and earnings per share climbed 29%, restrained by a higher share count. Other analysts are optimistic about VanceInfo, as well. Of those covering the company, 10 advise purchasing its shares and two advocate holding them. None suggest selling. Jefferies offers the highest target, at $44. The next highest is $42, from





Deutsche Bank

also rate the stock "buy." It has advanced 92% in the past 12 months.




owns the world's most popular search engine. Once a top-performing tech stock, Google gained 11% in 12 months and is flat over a three-year span, which seems strange, considering that it grew net income by 26% a year, on average, over that period. As the company grew, its stock multiples contracted, thus it is now at an historical discount, costing 23-times trailing earnings, compared to a five-year average of 32. Google reported quarterly results last week, beating the consensus adjusted earnings estimate by 8.3% and the sales target by 5.1%. It exceeded the historical beat rates of 5.9% and 3%.

However, the recent announcement that Eric Schmidt will be stepping down as CEO and transitioning to executive chairman so that Larry Page can take the helm has upset some investors. Schmidt will supposedly focus on mergers and acquisitions, a worthwhile endeavor, considering the company carries nearly $32 billion of net liquidity (cash minus debt). Jefferies boosted its 12-month price target to $800 in response to Google's solid fourth-quarter numbers. It has the highest projection on the Street.


is next highest, with a $780 12-month mark. An impressive 84% of researchers rate Google's stock "buy."




is a consumer electronics company, which, like Google, just announced the departure, albeit temporary, of a key executive. Steve Jobs will be taking a leave of absence to deal with ongoing personal health issues. Apple's stock trades at a substantial historical discount, commanding a trailing P/E of 18, compared to a five-year average of 26. The company's fiscal first-quarter net income surged 78% to $6 billion and earnings per share soared 75% to $6.43. Revenue stretched 71% to $27 billion. The operating margin declined from 30% to 29%. Like Google, Apple has a cash hoard, with $60 billion of cash and securities on hand.

In response to the news that Steve Jobs will be taking a medical leave, Jefferies reiterated its "buy" rating and $450 price target. The bank suggested that investors use any sell-off to acquire shares. The reason the bank, and others, are retaining optimism is because the product lineup, with the recent introduction of a


iPhone and escalating iPad sales, is secure for at least two years. Furthermore, Tim Cook is a capable executive and Jobs will be included in all strategic decision making. Mac units sold jumped 23% during the quarter as the company's market share in PCs gained substantially. iPhone units sold rose 86%. An anomalous 93% of analysts rate Apple "buy."

-- Written by Jake Lynch in Boston.

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