Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Gregg Greenberg will appear on NBR Tuesday (check local listings) to discuss what 2011 holds for Cisco and the rest of tech.
NEW YORK (TheStreet) -- Technology has been a tough stock-market sector to beat in 2010, and some fund managers expect more of the same for next year.
has risen 17.5% so far in 2010, compared with a 12.8% gain in the
S&P 500 Index
of large-cap stocks and a 10.8% advance in the 30-member
"We expect corporations to
continue to invest in technology, which provide the biggest bang for the buck with productivity gains, and consumers to keep spending on devices as we now view technology gadgets as a necessity or way of life," says Channing Smith, manager of the
Capital Advisors Growth Fund
. "Additionally, the balance sheets of the majority of companies in this sector have never been stronger."
Bryan Keane, a technology-equity analyst at
Alpine Mutual Funds
, says: "Technology will be a stock-picker's market with continued M&A activity as the larger players continue to consolidate the industry. As has been the case in the past decade, large-capitalization stocks continue to lag on a valuation basis. Select semiconductors and areas such as cloud computing and smartphone-related products will continue to be some of the winners."
searched for 2011's top tech stocks with Keane and Smith.
Tech giant Cisco's third-quarter earnings report disappointed Wall Street, but with the stock price down about 20% since then, investor concerns are overdone, says Smith.
In his view, Cisco is not only building the networking infrastructure for technology trends like mobile Internet, data-center virtualization, cloud computing and streaming video, but also for the trends that are coming such as the smart grid, RFID, virtual health care and networks for energy efficiency.
"We are looking at a future where we will see hundreds of billions of sensors and devices that will become connected over the next decade, and Cisco should be in the middle of this network tsunami. Don't forget Cisco is also participating in the emerging markets build-out of their technology infrastructure, which is expanding and will continue to grow faster than developed markets like the U.S. and Europe," says Smith, who adds that the cash-rich company's stock trades cheaply at under 12.5 times consensus earnings estimates for 2011.
Keane agrees, saying the company has underperformed this year but its products are still at the center of a lot of hot trends in technology such as cloud computing and mobile-data usage.
"We would expect an improvement in the business as we move through 2011," he says. "Plus, the company has discussed returning cash to shareholders, which would be received positively by the market."
Originally part of
and then purchased in 2005 by private-equity players, Avago Technologies was finally listed publicly in summer 2009 and has never looked back.
The company has developed into a leading supplier of analog interface components for communications, industrial and consumer applications, providing an extensive range of analog, mixed-signal and optoelectronics components and subsystems to 40,000 customers.
In terms of everyday computing, Avago pioneered the optical-navigation technology found in many mice used throughout the world today. In fact, the company introduced an optical sensor system-on-chip with the market's smallest pin-count for mice earlier this month. To date, Avago has shipped over a billion optical navigation sensors to customers worldwide.
"Avago is in the right product areas, such as smart phones and networking," Keane says. "Their technology is being designed into more phone models. Meanwhile, its networking-infrastructure business is set to begin to ramp several design wins over the next 18 to 24 months. The company also has an attractive valuation relative to its analog peers."
Corning, a designer and manufacturer of glass and ceramic substrates found in liquid crystal displays, is an example of a cheap stock that provides key parts needed in mobile Internet devices, says Smith.
The majority of Corning's business is levered toward display technologies and telecommunications. A key competitive advantage Corning holds is its innovative and proprietary manufacturing techniques, which allows for high-quality and thinner "slices" of glass, which its competitors have not been able to replicate. As a result, the company supplies a large portion of the glass panel market for LCD televisions and enjoys industry-leading profit margins.
While Smith is excited about the growth opportunities in flat-panel televisions in the U.S. and abroad, he says Corning's biggest market opportunity lies in supplying its proprietary Gorilla Glass technology, which is a thin sheet of glass that's durable and resistant to scratches, to makers of smartphones, tablets and other portable mobile Internet devices.
"We continue to think the saturation point for mobile Internet devices could be well over 10 billion devices, and today the global adoption rate of these devices remains quite low," says Smith. "To date, more than 27 major brands have chosen Gorilla Glass as a cover material for handhelds and laptops applications, more than 200 million units in use today have Gorilla Glass and more than 290 design wins have been secured for future product roll-outs."
Smith also likes Corning's valuation of less than 10 times consensus earnings estimates for 2011.
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