Technology Stocks: Five Tech Stocks to Avoid This Year

After a rocky 2011, tech stocks have gotten a nice bounce this year.

The Nasdaq 100 index is up well above the rise in the Standard & Poor's 500 index.

Strong earnings from Intel Corp. (Nasdaq: INTC), Microsoft Corp. (Nasdaq: MSFT) and International Business Machines Corp. (NYSE: IBM) have drawn attention to tech stocks.

And Apple, Inc (Nasdaq: AAPL) blew past all expectations, making a record $13.06 billion in profits for the quarter.

But while tech stocks may look tempting right now, knowing which tech stocks to avoid will prevent a lot of pain to your portfolio in 2012.

So here are five tech stocks you should avoid, at least for now. (For stocks you should buy now, take a look at a new report from Money Morning right here.)

Five Tech Stocks to Avoid

  • Research in Motion Ltd. (Nasdaq: RIMM) - Though smartphones in general are doing well, right now, the Blackberry is falling seriously behind the competition from Apple Inc. (Nasdaq: AAPL) and those running Google Inc.'s (Nasdaq: GOOG) Droid OS.

    Here's a statistic that says it all: General Electric (NYSE: GE) execs essentially had no iPhones in the corporate lineup as recently as three years ago. Today they have 10,000. That's still well below the 50,000 Blackberries in use. But I predict the trend toward Apple will continue as users replace their legacy phones.

    RIMM is off nearly 73% over the past year, while Apple shares have gained 25%. And its co-CEOs, Jim Balsillie and Mike Lazaridis, stepped down. Investors were not encouraged when new CEO Thorsten Heins said he doesn't believe drastic changes are needed.

    Research in Motion does have a clean balance sheet, so turnaround investors may want to take a plunge. But as a high-tech play, the company looks to tread water at best in 2012. One more red flag: RIMM has estimated 2012 sales and earnings below consensus forecasts.

  • Hewlett-Packard Co. (Nasdaq: HPQ) - The storied computer maker has two main obstacles to overcome this year. At the top of the list is the slowdown in computer sales. According to data from research firm Gartner Inc. (Nasdaq: IT), the PC market actually shrank 1.4% in the December quarter from a year earlier. Add to that the sudden burst in tablet sales, and you can quickly see a combination of weak revenue and lower profit margins ahead for H-P.

    H-P also suffers from a self-inflicted wound. Former CEO Leo Apotheker last year announced Hewlett-Packard would exit the PC market altogether, one of the main reasons he was ousted. But the damage remains.

    H-P's large enterprise clients - companies with several hundred to several thousand users - need to know H-P is in it for the long haul. Otherwise, they'll just buy cheaper PCs and hire a service company instead of relying on H-P's support.

    The company still generates a ton of cash flow and has decent returns on equity. But it has $30 billion in debt compared with just $8 billion in cash. By comparison, Google has about $35 billion in net cash. Over the past year, H-P stock has fallen more than 40%.

  • Yahoo! Inc. (Nasdaq: YHOO) - Yahoo just can't get its act together. While key executives were napping, Google burst on the scene a decade ago and rewrote the rules of web search and advertising. Portals like Yahoo never regained their traction.

    The movement in recent years to social media, where Yahoo remains a laggard, has made matters worse.

    Carol Bartz of Autodesk Inc. (Nasdaq: ADSK) fame came in as CEO and quickly flamed out. And we just learned co-founder Jerry Yang has left the board.

    It's a revolving door at the top, which definitely makes Yahoo! a tech stock to avoid.

  • Orbital Sciences Corp. (NYSE: ORB) - This company has some terrific technology that should help with the New Space Race. But its fortunes are still too dependent on the National Aeronautics and Space Administration's (NASA) direct spending.

    U.S. President Barack Obama has cancelled a return to the moon that would have helped Orbital in the near term. Also, NASA had to delay plans for space taxis until 2017.

    Over the long haul, Orbital looks like it should bounce back as the United States and other governments launch more satellites and robotic vehicles.

    Moreover, private entrepreneurs will step up commercial space travel over the next few years. But for 2012, Orbital is basically dead money.

  • Groupon, Inc. (Nasdaq: GRPN) - Groupon set a record last year for an initial public offering (IPO) and had the largest valuation of any Internet company since Google debuted in 2004. But the online deal company has lost significant value and looks to be a loser in 2012.

    The Groupon IPO opened at $20 a share and shot up by more than 50% to $31. It then fell below the offer price but has come back to break even. The company continues to lose money and will likely do so for the rest of this year.

    True, Groupon has plenty of cash in the back and no debt, but you can find much better tech companies out there with stronger cash flow and solid earnings. For 2012, Groupon is a tech stock to avoid.

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