Your New Year's Resolution: Avoid Boring Tech Stocks in 2012

BOSTON (TheStreet) -- The turning of the calendar to a new year usually means making resolutions, whether it be to exercise more or to quit smoking. Investors, though, should resolve to avoid boring technology stocks in 2012, says fund manager Jerry Jordan.

Jordan, manager of the Jordan Opportunity Fund ( JORDX), sees little opportunity in the technology sector, which outperformed industrials, financials and materials in 2011 but underperformed consumer staples, utilities and health care. With 2012 barely begun, Jordan says investors probably won't find many appealing names in tech this year, either.

"There is very little in tech worth owning," Jordan says by phone from his Boston office. "It's not so much avoid tech. It's just that there isn't much exciting. It's just hard to find anything that's particularly interesting."

Over the past year, the information-technology sector of the S&P 500 has gone nowhere as several tech heavyweights have floundered. Hewlett-Packard ( HPQ) is down 37% over the past year, Oracle ( ORCL) has dropped 17%, and Microsoft ( MSFT) has declined 4%. High fliers like Akamai Technologies ( AKAM) and ( CRM) have lost 31% and 25%, respectively, over the past 12 months.

Jordan has a takedown for nearly every group of tech companies. Of hot up-and-coming stocks like and VMWare ( VMW), Jordan notes that the stocks trade between 50 and 80 times earnings, a rich premium to the broader market. While he says HP and IBM ( IBM) are "crazy cheap" by the same valuation metric, he notes that investors will probably see flat or lower earnings going forward.

"For example, Microsoft ( MSFT) is a fine stock to own, and it won't hurt you, but it's been a market performer for years," Jordan says. "And IBM, it's a Dow stock, it's been around forever, and Buffett owns it. But what does it do? It's a big lumbering tech company with a lot of entrenched customers. They don't do anything really well or anything really wrong. I don't know if that continues."

But like those who give up the treadmill and elliptical machines in February for a pint of Ben & Jerry's ice cream, investors who pledge to stay away from tech stocks could be lured into buying some of the highest fliers, especially with a rash of high-profile tech IPOs set to launch this year, including Facebook. For those investors bitten by the tech bug in 2012, Jordan recommends taking a look at the still-burgeoning mobile Internet space.

Interestingly, Apple ( AAPL), Qualcomm ( QCOM), Google ( GOOG) and SanDisk ( SNDK) occupied four of the fund's top six spots based on portfolio assets as of Sept. 30.

"The smartphone/tablet space which is a massive, global phenomena," Jordan says of his ownership of these tech names. "As the emerging market world shifts from 2G to 3G smartphones, demand will explode. People will be doing more and more of their lives through a smartphone. You're going to have to have a more powerful smartphone."

While Jordan still owns Apple because of the allure of the iPhone and the iPad, he says the shares are still extremely cheap on a valuation basis, even without stripping out the company's massive cash holdings.

"In terms of sales, it's enormous," Jordan says of Apple heading into 2012. "The profitability part is where it gets dicey. At 11 times earnings, there is a lot of margin compression priced in for Apple. I still think the runway is big. There is a law of diminishing returns. We're probably still an iteration or two away from that. If Apple runs to 15 or 18 times earnings, I'd be a seller. But I don't think I have a lot of risk in Apple."

Meanwhile, Jordan owns Qualcomm because the company owns all of the patents for all of the chips that go into 3G phones. "Intellectual property is going to become a bigger and bigger deal," he says. "Qualcomm still has that. How long they have it remains to be seen."

Lastly, he owns SanDisk because phones and tablets are using flash memory. "It's a pure commodity play," Jordan says of his ownership of SanDisk, adding that he has recently trimmed his position. "I still think it's cheap enough. It's going to wax and wane like most commodity players in tech."

Jordan is also turning to mobile payments and other technology that joins buyers and sellers. Those companies include Google and eBay ( EBAY) and even some other interesting growth names like OpenTable ( OPEN).

These tech picks for 2012 will hopefully help Jordan reverse a recent downturn. Jordan's fund was hammered in 2011, notching a total return of minus 20.9% through Sept. 30 as the benchmark S&P 500 index fell only 8.7%. Updated performance figures for all of 2011 haven't been revealed yet. The performance through September made 2011 a year to forget for Jordan, although his fund has handily outpaced the S&P 500 over the five- and 10-year periods.

But he's also looking outside of tech for opportunity in 2012. When asked for his most exciting pick for the next year, tech or otherwise, Jordan doesn't skip a beat and throws out SunTrust Bank ( STI). He adds that he currently has a "huge" position in regional banks right now.

"We've seen the lows in housing and construction," Jordan reasons. "You have an oversold group, they're the most underowned group. If you get any inklings the economy is doing even mildly well, it could be good for the banks. SunTrust could be a $25 or $26 stock. It peaked at $33 last year and trades for $18.50 now. If it even goes halfway, I know I've outperformed."

-- Written by Robert Holmes in Boston.

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

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