Goldman Sachs' Best Tech Stocks for 2011

BOSTON (TheStreet) -- It's been tough sledding for technology stocks this year, and Goldman Sachs' (GS) "conviction buy" list for tech companies are indicative of that, showing mixed results. Still, the Wall Street bank is hanging in there with six of its picks from the start of the year.

The firm had seven stocks on its list at the start of 2011 and, since then, has dropped Sapient ( SAPE) from the "conviction buy" list and added Synchross Technologies ( SNCR).

Sapient's shares have gained 19.8% this year and had topped the target price of $15, although they are now trading at $14.19.

Stocks in the information-technology sector are performing poorly this year, losing 3.2% through June 24, as tracked by Fidelity, ahead of only financial shares, which have lost 9.5% of their value. The S&P 500 Index is up 1.8% this year and 20.5% over the past 12 months.

Standard & Poor's said in a recent research note that hardware and software companies with an Internet bent are likely to prosper over the next year. The ratings firm said in a recent research note that "we foresee growing demand for Internet-based computing solutions because they offer companies opportunities to reduce costs and improve customer service. Accordingly, servers and data-center computing hardware should benefit from rising demand." However, the industry is extremely competitive, hence its "neutral" rating.

Here are updates on the seven technology stocks currently on Goldman Sachs' "conviction buy" list:

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7.

Cognizant ( CTSH) shares get a $93 price target from Goldman Sachs, which represents a 28% premium to their current price. The stock peaked this year at $83.48 on May 2.

Other analysts are also bullish. According to a Standard & Poor's survey of analysts' ratings, there are 10 "buys," nine "buy/holds" and six "holds." S&P gives it a "strong buy" rating, with a price target of $76.

Cognizant shares are down 1.6% this year, but up 38% over the past 12 month. It has a market value of $20.8 billion.

Cognizant, based in Teaneck, N.J., is a provider of offshore information technology support and software development using offshore workers, primarily from India. Its clients are typically large companies in North America and Europe. First-quarter revenue increased 43% to $1.4 billion. In fact, revenue has risen in excess of 40% annually, on average, during the last five years.

S&P analysts say "revenue growth in 2011 will likely not duplicate last year's 40% gain, (but) we still look for a very strong 30% increase this year. We look for (earnings per share) of $2.76 in 2011 and $3.28 in 2012."

On May 25, Goldman analysts reiterated their "buy" rating and wrote that Cognizant's "revenue growth profile of 32% in 2011 is matched by only a select few large-cap technology companies. At our forecast growth rates, it would double its total revenues from $4.6 billion in 2010 to nearly $10 billion through 2013; this long-term scenario is reinforced by (Cognizant's) recently announced $500 million capacity expansion plan."


6.

NCR ( NCR) carries a $24 price target from Goldman, a 30.7% premium to its current price of $18.23. Its 52-week high is $20.62.

As a maker of automated self-service machines, it is the largest global vendor of ATMs and also sells point-of-sale terminals and self-service check-out systems for retail stores, and self-check-in kiosks for airlines and hotels.

Goldman analysts said NCR is the firm's top mid-cap financial-technology pick after a very strong first quarter. NCR's forward price-to-earnings ratio is a relatively low 9.1, and the company has little long-term debt.

A review of analysts' ratings by S&P found two "buys," four "buy/holds" and four "holds."

Its shares are up 19.7% this year and 43% over the past 12 months, giving it a market value of $2.8 billion.

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Synchronoss Technologies ( SNCR) is a June 20 addition to the Goldman Sachs "conviction buy" list.

Goldman analysts said "we believe the shares' recent pullback provides an attractive entry point for long-term investors with the shares offering 36% return potential to our 12-month price target of $39 and an upside scenario which suggests 50% to 91% potential over the next two to three years."

Synchronoss shares are up 14% this year and 54% over the past 12 months, giving the company a market value of $1.1 billion.

The company makes multi-channel transaction-management systems for communications-services providers. Its ConvergenceNow software platform processes transactions for account activations and changes, as well as billing management systems.

The company reported a first-quarter profit of $1.5 million, or 4 cents per share, on revenue of $53 million, up 51% from the previous year.


Qualcomm ( QCOM) is the developer of code division multiple access (CDMA) technology, which is a key communications standard used in wireless networks. The company is a supplier of chips to wireless handset makers and also generates royalty revenue by licensing its intellectual property for CDMA.

Qualcomm shares get a price target of $68 from Goldman, a premium of 26% to its current price of $54.22. They reached a 52-week high of $59.84 late last year. The company's shares have a $91 billion market value.

According to a FactSet review of analysts' ratings, it found 30 "buy" ratings, six "outperforms," five "holds" and one "sell."

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EMC ( EMC) is a provider of hardware, software and services for enterprise-network storage.

Its shares, now at $25.68, are up 16% this year and 39% over the past 12 months. Its shares peaked early this year at $28.73.

Goldman has a $33 price target on its shares, a 28% premium to the current price. Its shares have a $53 billion market valuation.

In a bullish commentary on the company April 20, Goldman analysts wrote that "we believe that networked storage will continue to enjoy secular tailwinds throughout 2011, and that EMC is well-positioned to capture the lion's share of this market's growth.

"In addition, we believe EMC's leading portfolio of cloud and next-generation enterprise technology assets should allow it to generate sustainable double-digit growth and build an increasingly software-centric earnings profile over the nextseveral years," they said.


Apple ( AAPL) designs consumer electronic devices, including PCs, the iPad, the iPhone and the iPod. And it is diversifying rapidly. Its iTunes online store is now the largest music distributor in the world: It sells and rents TV shows and movies and sells applications for the iPhone and iPad.

Goldman has a $470 price target on it shares, about a 44% premium to its current price of $326.93. Its shares have traded as high as $364.90 this year. They are up 2.7% this year and 22% over the past 12 months, giving the company a market value of $302 billion.

In its fiscal second quarter, Apple reported that revenue increased by 83%, driven by 126% iPhone revenue growth, 32% Mac revenue growth and $2.8 billion of iPad sales.

In a June 14 research note, Goldman analysts said "we would continue to be buyers of Apple's stock, and we maintain our (convictions list 'buy') and 12-month target price of $470 (based on an 18 times price-to-earnings) multiple on our (calendar year 2011 earnings per share estimate). We believe current valuation represents an attractive buying opportunity, as Apple shares trade at just 11 times our 2012 estimate" which is nine times its cash balance.

S&P's review of analysts' ratings found 28 "buys," 24 "buy/holds," three "holds" and one "sell."

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Juniper Networks ( JNPR), which designs and sells network infrastructure for sophisticated computer networks, saw sales 23% increase in 2010, and they are expected to grow by 18% in 2011 by analysts.

Its shares are down 18% this year, but up 24% over the past 12 months, giving the company a market value of $16 billion.

Goldman has a $50 price target on its shares, a 65% premium to its current price. It has traded as high as $45 early this year.

On April 20, Goldman lowered its price target to $50 from $54, based on the application of a price-to-earnings multiple of 25 to its new 2012 non-GAAP earnings per share estimate of $2.01. The shares currently have a forward price-to-earnings ratio of 16, relatively low versus its peers.

Last week, RBC Capital downgraded Juniper shares to "sector perform," or "neutral," from "outperform," and its analyst said the company faces "a back end loaded quarter and slowing demand for some of its switches and security products" in the near term.

>>To see these stocks in action, visit the Goldman Sachs' Best Tech Stocks portfolio on Stockpickr.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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