Tech Stocks Priced for Bargain Deals, Edge Higher on Analyst Upgrades

Analyst upgrades lifted the technology sector on Monday, as cheap valuations and strong balance sheets in tech companies are making for good buys, as outlined in Money Morning's Midyear Forecast on tech stocks.

Analysts say tech stocks haven't been this cheap since 1992, excluding a brief period before the March 2009 bull market started, and now is the time to buy.

"Tech stocks have some of the strongest balance sheets in the S&P 500," Bruce Bittles, chief investment strategist of Robert W. Baird & Co., told Bloomberg. "The valuations are inexpensive - that's another plus. It's a good time to invest in tech."

UBS AG (NYSE: UBS) says even if U.S. growth slows, the tech sector will resist a decline due to increased company spending and stock prices already hitting decade lows. The Standard & Poor's 500 Information Technology Index rose 5.6% last week, the biggest gain in a year.

"The technology sector has been overlooked," Kevin Gardiner, head of global investment strategy at Barclays PLC (NYSE ADR: BCS), told Bloomberg. "One of the sectors that we have been quite positive on globally has been technology, and we've been gritting our teeth and hanging on to that view."

UBS upgraded SanDisk (Nasdaq: SNDK) to "Buy" from "Neutral" Monday and upped its price target to $55 from $46. The stock rose over 6.78% Monday, pushing total 2010 gains to over 57%. UBS analyst Uche Orji wrote to investors that high demand in the tablet and smartphone markets and favorable memory chip pricing will boost the stock in the second half of the year, and that momentum will offset oversupply concerns.

"We view the risk of oversupply in 2011 as a modest risk as demand for tablet devices combined with greater smart phone penetration could keep this risk in check," Orji wrote in a note to clients.

Also boosting tech stocks Monday was Goldman Sachs Group Inc. (NYSE: GS) adding chipmaker Qualcomm (Nasdaq: QCOM) to its "Conviction Buy" list of stocks expected to outperform. Qualcomm rose 3.51% and helped boost tech exchange-traded fund Broadband HOLDRS, which has a 57% exposure to Qualcomm, (NYSE: BDH) up 2.22%.

Qualcomm rakes in royalties on every global 3G phone sale and has saved up an impressive cash pile from licensing fees. Goldman analyst Simona Jankowski wrote in a note Monday that Qualcomm provides chips for about 80% of smartphones running Google Inc.'s (Nasdaq: GOOG) Android software and an increasingly popular smartphone market will help Qualcomm's royalty rate. Goldman sees the share price hitting $43 in the next 12 months.

Microsoft Corp. (Nasdaq: MSFT) also gained over 2% Monday after it announced over the weekend plans to team up with Japanese tech service firm Fujitsu Ltd. to develop cloud-computing services. Microsoft would be able to access Fujitsu's data centers and customer base, while Fujitsu could offer Microsoft's Azure, which gives Internet-based access to Windows software.

Janney Capital Markets upgraded Microsoft to "Buy" from "Neutral," saying "it remains a significant cash flow generator trading at compelling levels."

Tech earnings reports will kick off this week with Intel Corp. (Nasdaq: INTC). Analysts expect the world's top chipmaker to report earnings of 43 cents a share, on revenue of $10.25 billion, and that strong earnings reports will override concerns of a slow economic recovery hurting the tech sector.

"When you are looking for sustainable earnings growth and cash generation, there is no better place to look than tech," Zach Rosenstock, an analyst with Wayne Hummer Wealth Management, told Reuters.

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