3 Top Tech Stocks for 2012

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's James Rogers will appear on NBR Monday (check local listings) to look at the top tech stocks for 2012.

NEW YORK ( TheStreet) -- The tech sector, like much of the U.S. economy has had to struggle through a difficult 2011, but IBM ( IBM), Salesforce.com ( CRM) and Juniper ( JNPR) could offer investor upside in 2012.

The Nasdaq has dipped almost 3% over the last six months, weighed down by the U.S. debt crisis and Europe's ongoing fiscal problems. It's not all doom and gloom, however, according to experts, who predict the three companies will shine during the coming 12 months.
Word on the Street

IBM, for example, could offer investors a safe port in the gathering economic storm.

"It looks like the latter half of next year will be very difficult economically," said Charles King, principal analyst at research firm Pund-IT. Large-cap dividend paying stocks such as IBM could therefore perform well for investors, he added.

Salesforce.com and Juniper, on the other hand, have seen their stocks beaten down in recent months, but are poised for a 2012 turnaround.

"CRM's weak year-end performance in 2011 may set it up very nicely for 2012," explained Pat Walravens, an analyst at JMP Securities, in an email.

Read on for more details on tech's top 2012 stocks.

IBM

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Market Cap: $227.31 billion.

IBM may not be one of tech's sexier stocks, but Big Blue has plenty to offer investors in 2012, as evidenced by its new 52-week high on Monday. Even Warren Buffett is getting in on the action, recently grabbing $10.7 billion worth of the company.

"If the global or regional economies continue to stagger, I think that investors and institutional investors are going to see a lot of value in steady dividend payers like IBM," explained Pund-IT's King. "When you have got a seasoned investor like Warren Buffett that has traditionally avoided tech, getting involved , it's an interesting indicator of what may be ahead."

The server, software and services giant also hiked its dividend to 75 cents a share from 65 cents earlier this year. This year marks the 16th year in a row that the firm has raised its quarterly dividend.

IBM, which recently beefed up its share buyback, has returned over $109 billion to shareholders since 2003 through repurchases and dividends.

TheStreet Ratings cites IBM as a buy, pointing to its strength in a number of areas, such as revenue growth, return on equity, stock performance, earnings growth and expanding profit margins.

IBM, however, was punished by investors recently when it missed Wall Street's third-quarter revenue estimate, although the tech bellwether is still seen as one of the more dependable tech stocks.

The Armonk, N.Y.-based firm may lack the cachet of trendier companies such as Apple ( AAPL) and Google ( CSCO), although its vast software and services businesses offer consistently stable revenue streams, helping insulate the firm against economic unease.

Shrewdly selling off its PC business to Lenovo way back in 2004, IBM has successfully shifted its focus onto high-margin areas, something which rivals such as Hewlett-Pakcard ( HPQ) are now attempting to emulate.

IBM's software business, for example, continues to enjoy strong growth. The tech bellwether's software revenue grew 13% year over year to $5.8 billion during its recent fiscal third quarter. The company's services division has also been performing well, with revenue growing 8% year over year to reach $10.3 billion.

Set against this backdrop, IBM's shares have risen almost 31% this year and incoming CEO Ginni Rometty is expected to continue the good work of her predecessor, Sam Palmisano.

Salesforce.com

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Market Cap: $17.35 billion.

Salesforce.com has not had the easiest of times recently, although the cloud trailblazer is still worth a look over the coming 12 months.

The San Francisco-based firm has enjoyed great success helping companies manage their customer relationships via the Internet. Its stock, however, hit a speed bump in the aftermath of its recent third-quarter results. Investors balked at the company's weaker-than-expected billings growth, pushing the shares to a new 52-week low.

Expectations, though, are still high for the company, both in its seasonally stronger fourth quarter, and in 2012. As a result, analysts see a good entry point into Salesforce's stock, even after its recent rally.

Salesforce, for example, struck an upbeat tone during its CloudForce customer event in New York last week, and experts see upside ahead for the company.

"Management of salesforce.com assured investors that there has been no change in the underlying pace of new business closings," explained Rick Sherlund, an analyst at Nomura Equity Research, noting that the company recently raised its fourth-quarter guidance. " Salesforce.com reiterated at CloudForce that it is not seeing a change in the economic environment or a slowdown in its business activity."

Moving forward, Salesforce is charging hard around what it describes as "the social enterprise" -- essentially harnessing the power of social networking for the corporate world. The company, for example, recently unveiled its Radian6 social monitoring cloud, which amasses data from the likes of Facebook, Twitter and YouTube.

Other Salesforce offerings in the "social enterprise" space include Chatter, a private social network for companies which is being deployed by Verizon ( VZ), GE ( GE), Avaya and Toyota.

"Salesforce.com has the potential to be very big in this new market," explained Nomura's Sherlund, who has a 'buy' rating on the firm. "We think the company has robust growth potential as it begins to deliver a much broader product footprint."

"With Salesforce, they definitely seem to be at the epicenter of the cloud," added Pund-IT's King. "They are a company that seems to be at the forefront of new cloud developments -- they are a consistent mover and shaker in that space."

No surprise, then, that Salesforce describes itself as the first enterprise cloud computing company to exceed a $2.3 billion annual run rate, and expects to reach a $3 billion annual run rate in its fiscal 2013.

Juniper Networks

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Market cap: $12.4 billion.

It was a tough 2011 for networker Juniper. The Cisco ( CSCO) rival saw its shares slump more than 36% as the one-time Wall Street darling wrestled with the effects of a tough economy.

Juniper's pain, though, could be investor's gain, according to Brian Marshall, IT hardware and data networking analyst at ISI Group.

"Basically, expectations are low, Juniper was beaten to a pulp this year," he explained, adding that the firm is gearing up for a big 12 months. "Out of the 11 IT hardware and data networking companies we cover, Juniper offers investors one of the most robust product cycles for 2012."

Specifically, the analyst cites Juniper's new T4000 core router as a growth catalyst, as well as its QFabric technology, touted as a revolution in data center networking. Other drivers include the MobileNext telecom products that were launched earlier this year and the eagerly-anticipated PTX Supercore switch, which Juniper said can reduce the amount of hardware needed to run service provider networks.

The first T4000 shipments will reach Juniper customers later this quarter, while the PTX makes its debut during the first quarter of 2012. Juniper unveiled its QFabric earlier this year and began shipping the technology in September. Additional features for MobileNext are expected next year.

Speaking at a recent investor event, Juniper Chief Financial Officer Robyn Denholm explained that the company has been in a "heavy R&D cycle" for the last three years, but said that the fruits of its labors are now coming to market.

Juniper now has the strongest portfolio of products in its history, according to the firm, which recently posted in-line third quarter results.

Experts have certainly been warming to Juniper recently, with the company receiving an upgrade from RBC Capital Markets, and getting positive attention from TheStreet's Action Alerts Plus, which sees the stock as a comeback story.

"Juniper is managing through current execution and product transition issues, but has major new product ramps occurring in 2012," added Alkesh Shah, an analyst at Evercore Partners, in an email to TheStreet. "That should enable it to provide upside surprises to consensus and enable the stock to work."

>>To see these stocks in action, visit the 3 Top Tech Stocks for 2012 portfolio on Stockpickr.

--Written by James Rogers in New York.

>To follow the writer on Twitter, go to http://twitter.com/jamesjrogers.

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