This column was originally published on RealMoney on Jan. 29 at 2:09 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here .

Unlike many on Wall Street, I'm not enamored with the tech sector. By my standards, it's just not cheap enough. According to my research, this sector is just 2.2% undervalued. I prefer this group when it's at least 10% undervalued and I can find tech stocks that are 20% undervalued and rated a buy or better by ValuEngine.

I wrote a column titled "Tough Times Ahead for Big-Cap Tech" back on Dec. 18, and my thesis still holds true today. I track tech stocks with market capitalizations of $50 billion or more, and that universe has now shrunk to 13 names from 15 last October.

Texas Instruments ( TXN) was the first to fall. It now has a market cap of $46 billion, declining after the company cited lower-than-expected demand for cell-phone chips. A more recent dropout is Motorola ( MOT), which fell from the list as 2007 began. Its market cap is now $44.4 billion, as it warned that higher sales of low-end phones reduced demand for high-end devices.

However, technology is still finding favor with a lot of market participants. An article in Sunday's New York Times quoted a recent Merrill Lynch survey, which showed that 41% of domestic equity fund managers are overweight tech, up from 23% in November. Amazingly, the same article also described technology as "the one sector that hasn't experienced a sustained rally since the bear market of 2000." I'd argue that the tech-heavy Nasdaq has seen a 125% gain since the October 2002 bottom, compared with a rise of 75% for the Dow Jones Industrial Average.

Although Jim Cramer sees tech rallying as a result of low expectations, he did name a list of his five favorites:

However, none of these makes the grade according to my model. They can be traded in short spurts, but investors would be better served by considering exit strategies on strength.

Let's take a look at what the model says abut these names as well as a few others.

Tech Prospects
Here's how they measure up to the model
Big Cap Tech Company/
Symbol
26-Jan Price Rating (-UV)/
OV By
Fair Value MOM 5-Week MMA Value Levels Pivots Risky Levels
Apple (AAPL) $85.38 Hold -8.9% $93.67 DM $86.69 64.37 A / 63.73 S 82.69 S / 94.61 Q 95.73 Q
Cisco (CSCO) $26.35 Hold 16.0% $22.73 OB $26.99 23.09 Q / 22.53 Q 25.22 M / 26.09 S 29.77 A / 30.11 S
Dell (DELL) $23.73 Hold -23.5% $31.02 DM $25.26 22.39 M 25.32 A 28.03 Q / 37.22 S
Google (GOOG) $495.84 Hold -4.4% $518.53 F $483.63 435.47 M 453.96 M 549.03 Q / 552.73 Q
Hewlett-Packard (HPQ) $41.69 Hold 8.4% $38.45 OB $41.24 38.76 S / 35.54 S 40.52 Q 42.79 Q
IBM (IBM) $97.45 Hold 10.6% $88.10 OB $95.80 90.01 M / 84.25 Q 97.93 S 98.72 A / 99.07 S
Intel (INTC) $20.53 Hold -12.2% $23.38 DM $20.88 19.66 M 20.70 Q 23.50 A / 24.72 Q
Microsoft (MSFT) $30.60 Hold 14.4% $26.75 OB $30.14 27.99 S / 27.33 A 29.37 M 46.92 A
Nokia (NOK) $21.58 Hold 12.0% $19.27 RM $20.32 17.98 M 19.89 S / 19.94 S 21.79 Q / 22.71 Q
Oracle (ORCL) $17.15 Hold 10.8% $15.48 DM $17.55 15.28 Q 16.91 S / 17.00 S 18.49 M / 28.72 A
Qualcomm (QCOM) $37.51 Hold -20.5% $47.21 DM $38.26 24.91 M 37.71 Q / 42.12 Q 52.05 S / 52.16 S
SAP AG (SAP) $46.20 Hold -13.4% $53.33 DM $50.08 none 46.72 M / 52.31 Q 55.59 Q / 58.00 S
Taiwan Semi (TSM) $10.93 Hold 22.5% $8.92 OB $10.82 9.20 M 10.72 Q 11.52 Q / 12.33 S
Key: MOM, momentum; OB, overbought; DM, declining momentum; RM, rising momentum; OS, oversold; F, flat; M, monthly; Q, quarterly; S, semiannual; A, annual. A value level is a price at which my models project that buyers will emerge; a risky level is a price at which investors are likely to reduce holdings, according to my models. A pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot. Source: RightSide.com

Google reports its quarterly earnings on Wednesday, and that could be an important tell for the sector. For the stock itself, I have noticed a trading pattern. Google tends to rally to its fair value on a positive earnings report and keeps rallying if the stock's fair value moves higher. Wall Street often raises its price targets, and then Google drops to a value level from my model and can become as much as 20% undervalued.

After all the hoopla surrounding new $600 price targets for Google, the stock's fair value rose into the $510-to-$513 range, and $513 has been a double-top, set on Nov. 22 and Jan. 16. In between these peaks, Google traded as low as $452.34 on Dec. 21, which gave traders the chance to buy at my monthly value level at $459.36.

As the table above shows, my monthly pivot is now $453.96, with fair value at $518.53 and quarterly risky levels at $549.03 and $552.73. Google is covered by 28 Wall Street analysts, and the median price target is $557, not far above my risky levels.

Google: The Weekly View
This chart shows a solid uptrend for the Internet search giant
Source: Reuters

Google: The Daily View
This chart shows the stock's double-top
Source: Reuter

Here's how the others can be traded:

  • Apple: Consider trading this one between my semiannual pivot at $82.69 and my quarterly pivot and risky level at $94.61 and $95.73. Investors should be prepared to buy longer-term weakness to my annual and semiannual value levels at $64.37 and $63.73. Twenty-two Wall Street analysts have a median price target of $111.50 on the stock; this does not seem achievable in 2007.
  • Cisco: A close this week below the five-week modified moving average at $26.99 would shift the weekly chart profile to negative, putting the focus on my quarterly value levels at $23.09 and $22.53 as the company reports earnings on Feb. 6. Twenty-five Wall Street analysts have a median price target of $30, which lines up with my annual and semiannual risky levels at $29.77 and $30.11.
  • Dell (DELL): This stock is below my annual pivot at $25.32, indicating risk to my monthly value level at $22.39.
  • Hewlett-Packard: A close this week below the five-week modified moving average at $41.42 would shift the weekly chart profile to negative, with risk to semiannual value levels at $38.76 and $35.54. Wall Street's median price target from 18 analysts is $45, above my quarterly risky level at $43.79.
  • IBM (IBM): As long as strength fails within the realm of my semiannual pivot at $97.93 and my annual and semiannual risky levels at $98.72 and $99.07, respectively, the risk is to my monthly value level at $90.01. A total of 18 Wall Street analysts expect $105 as a median price target.
  • Intel (INTC): My monthly value level is $19.66, with my quarterly pivot at $20.70 and my annual risky level at $23.50. Twenty-six Wall Street analysts have a median price target of $25.
  • Microsoft: A close this week below the five-week modified moving average at $30.14 would shift the weekly chart profile to negative, indicating risk to my semiannual and annual value levels at $27.99 and $27.33, respectively. Among 23 Wall Street analyst, the median price target is $33.
  • Nokia (NOK): Investors should consider reducing positions on strength to my quarterly risky levels at $21.79 and $22.71, which is below the median price target of $25 from 16 Wall Street analysts.
  • Oracle (ORCL): The semiannual pivots are $17.00 and $16.91. My monthly risky level is at $18.49, below the median price target of $20 from 21 Wall Street analysts.
  • Qualcomm (QCOM): This stock is below quarterly pivots at $37.71 and $42.12, with the median price target from 22 Wall Street analysts at $50.
  • SAP (SAP): It's below monthly and quarterly pivots at $46.72 and $52.31, with the median price target from 11 Wall Street analysts at $54.
  • Taiwan Semi (TSM): Investors should consider selling strength to my quarterly and semiannual risky levels at $11.52 and $12.33, vs. the median price of $12 from nine Wall Street analysts.
  • At time of publication, Suttmeier had no positions in any of the stocks mentioned in this column, although holdings may change at any time.

    Richard Suttmeier is the chief market strategist for RightSide.com, where he writes the Small Stocks and Sector Report. Early in his career, he became the first long bond trader for Bache and later began the government bond department at LF Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the U.S. capital markets. He has also been the U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. He appreciates your feedback; click here to email him.