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3 Tech Rebound Stocks for 2012

James Rogers |Staff Reporter
Tuesday, 21 Feb 2012 | 2:15 PM ET

Everyone loves triumph in the face of adversity (as evidenced by the “Lin-sanity” currently gripping the nation) so it’s hardly surprising that investors are enjoying the tech sector’s rebound after a moribund 2011.

In particular, the turnarounds at NetApp, Microsoft, and Seagate Technology are worthy of investor attention as the companies gear up for a much improved 2012.

NetApp is one of the tech stocks rebounding in 2012.

NetApp is “on track to get its mojo back,” explained Brian Marshall, an analyst at ISI Group, in a note, pointing to the storage specialist's solid third-quarter results last week. “NetApp illustrated the resiliency of its business this quarter and we believe it remains well-positioned to deliver solid growth over the next several years.”

Microsoft is also in the spotlight after the software giant’s stock hit a new 52-week high last week, while shares of hard disk-drive maker Seagate are soaring as the challenges of 2011 disappear in the rear-view mirror.

After a couple of lackluster quarters, NetApp busted out decent third-quarter results and guidance last Wednesday, pointing to a turnaround in the storage maker’s fortunes.

The EMC rival met Wall Street’s estimates, and projected fourth-quarter revenue and earnings in line with analysts’ expectations, much to investors’ delight.

“After missing Street expectations the last two quarters and turning many believers into skeptics, NetApp managed to turn in a solid quarter with balanced growth across products and geographies outside of U.S. federal,” noted ISI Group's Marshall, in his note.

Marshall maintained his NetApp “buy” rating and raised his price target to $50 from $47.

Speaking during a conference call to discuss the results, NetApp CEO Tom Georgens acknowledged that the company’s major accounts have been a drag on revenue growth all fiscal year.

“But we saw a bit of a rebound this quarter as the major accounts in all geographies other than U.S. public sector produced revenue growth in excess of fiscal year-to-date levels,” he added.

NetApp also explained that revenue from OEM partners such as International Business Machines and Fujitsu grew 6 percent sequentially, while sales of the company’s own branded products were up 4 percent over the same period.

Robert W. Baird analyst Jayson Noland says there’s a lot for investors to like about NetApp.

“We remain positive on NetApp’s underlying market and continue to believe the company has competitive advantages,” he explained, in a note released last week. NetApp is “well positioned for data center trends.”

Specifically, Noland highlighted NetApp’s core competencies in Network Attached Storage (NAS) and the iSCSI networking protocol, which bode well for server virtualization, unified storage, and the push towards 10-Gigabit Ethernet networks.

Noland maintained his NetApp “outperform” rating and $50 price target. NetApp shares are up more than 16 percent this year, closing at $42.20 on Friday.

Software giant Microsoft, which hit a new 52-week high last week, looks set to be another of 2012’s turnaround stocks. Microsoft shares did nothing last year as investors cast doubts on the company’s growth prospects, but have surged in 2012.

The tech bellwether, along with IBM and Intel, was one of the leaders of the recent tech rally after the companies all released good quarterly results.

Shrugging off concerns about the weakening PC market, Microsoft noted that its overall business environment remains strong. As well as citing strong enterprise spending, Microsoft CFO Peter Klein highlighted PC demand in emerging markets during a conference call to discuss the company’s results last month.

Since then, Microsoft has added flesh to the bones of its plan to run Windows on ARM (ARMH)-based processors, and is also gearing up to launch the eagerly anticipated Windows 8 operating system later this year.

Windows 8 is expected to be a big growth catalyst for Microsoft, particularly in the mobile space. The Redmond, Wash.-based firm will offer a consumer preview of Windows 8 at the Mobile World Congress event in Barcelona next week.

“We think that the Consumer Preview release is a step beyond beta code,“ explained Rick Sherlund, an analyst at Nomura Equity Research, in a note released last week. “Our checks indicate that the code is in good shape and we expect Windows 8 to be released to general availability in the September or October timeframe.”

Sherlund reiterated his Microsoft “buy” rating, citing the shares’ favorable valuation. Microsoft shares have climbed more than 20 percent this year, closing at $31.25 on Friday. TheStreet ratings gives Microsoft an “A” grade with a price target of $35.54.

Microsoft’s dividend strategy should also resonate with investors in 2012. The software giant raised its payment last year and now pays a quarterly dividend of 20 cents per share for a yield of 2.56.

Hard disk drive specialist Seagate shredded Wall Street’s earnings estimate in its recent second-quarter results, and also offered solid guidance, signaling an improved 2012.

The Fujitsu and Western Digital rival shipped 47 million hard drives during the quarter, and expects to ship 60 million drives during the coming quarter.

This time last year, however, Seagate was wrestling with concerns about the broader hard disk drive market, as tablets, which do not use hard disks for storage, ate into the market for traditional netbook PCs.

Seagate shrugged off these worries, spending $1.38 billion to acquire Samsung’s hard disk drive business, a bold move expected to drive future growth. The Samsung deal closed in late December and should extend Seagate’s reach, particularly in emerging markets such as China.

Speaking during Seagate’s second-quarter conference call, CEO Stephen Luczo also explained that the firm's “geographically diversified” factories and broad supply chain lessened the impact of last year’s floods in Thailand.

Luczo added that nearly all of Seagate’s largest customers have entered into binding long-term agreements, or LTAs, to ensure continuity of their HDD supplies, with some of the deals extending for multiple years.

Analysts welcomed the storage specialist's second-quarter numbers.

“[Seagate] management expects to see very favorable financial results continue for the foreseeable future,” explained Robert W. Baird analyst Jayson Noland, in a note. “We continue to see upside in shares of Seagate.” Noland maintained his Seagate “outperform” rating.

Stifel Nicolaus upgraded Seagate to “buy” from “hold,” with a $35 price following the company’s earnings, explaining that it should continue to outperform. Seagate was also upgraded to “buy” at TheStreet ratings.

Shares of Seagate, which did little for most of 2011, have gained more than 63 percent in 2012, closing at $26.88 on Friday.

Additional News: Google Gets Real-Time Data From LSE

Additional Views: Technology Stocks Reclaim 20% of the S&P 500 Weighting

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Disclosures:

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

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