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Wall Street Was Right: Technology Among the Leaders So Far in 2014

Jon C. Ogg

The S&P tech index rose 1.1% in the past five days, versus the S&P 500's 0.5% increase and for now it is looking like many of those 2014 prognostications we wrote about in December and early January are starting to come true. Most of the top firms we cover on Wall Street specifically named the Technology sector as a top sector to own in 2014. From the big bulge brackets to the super regional firms, they all agreed, technology was set up for a solid 2014. Internet is up more than 18% over the past three months, while all the other tech subsectors are up 2% to 9%.

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In a new research report from UBS, nothing has changed in terms of their feelings about technology stocks for the rest of the year, especially the large cap leaders. Slow but sure global growth is expected to help major corporations to lift their capital expenditure programs. In addition, many firms have waited for years to replace their current technology like workstations, printers, servers and other required items. Solid earnings that came in from Hewlett-Packard tend to bolster those beliefs.

UBS updates their top global large cap tech stocks to buy for 2014 and adjusts some price targets as well.

Apple Inc. (AAPL) remains a top pick at UBS with an aggressive price target. The combination of well-timed stock buybacks and the potential for exciting new products in 2014 and next year should prove to be the catalyst for the Silicon Valley giant. The company even conceded it has had discussions with skyrocketing automaker Tesla. Investors are paid a 2.2% dividend. The UBS target for the stock has been lifted to $625. The Thomson/First Call estimate is set at $585.32. Apple was trading Friday at just under $530.

Cisco Systems Inc. (CSCO) remains the networking leader and may be forced to really start to show real growth to Wall Street after three straight sub-par earnings reports. While the company has looked to protect its core business from new competition, stiff competition has started to squeeze the tech giant's core earnings power. Last year the company bought out the remainder of its majority-owned data center technology startup called Insieme in a deal that could cost up to $863 million. As it is a leader in the new "Internet of Things," investors are betting that the company will enhance the network interface ability of tech companies. Investors are paid a solid 3.4% dividend. The UBS price target is $26.50. The consensus estimate is at $23.55. Cisco was trading Friday at $22.22.

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EMC Corp. (EMC) may continue to be an investor's perfect tech stock for 2014 and far beyond. Combining its gigantic lead in large-scale storage with the majority ownership of cloud software giant VMware makes the stock a solid double threat play for investors. VMware alone contributes almost 24% of EMC's total revenue. The company is the leading provider of virtualization software, which lets companies run multiple software operating systems and apps on one server to reduce hardware costs, and it appears poised for more robust growth after a management change, a spin-off and a perception of threats from rivals. Investors receive a 1.6% dividend. The UBS price target is set at $30, and the consensus is at $29.15. EMC was trading Friday at $25.80.

Google Inc. (GOOG) continues to plow ahead with what seems like a plan to conquer the tech world by having a large swipe of everything. In fact, reports say that the tech giant was prepared to even outbid Facebook in its gigantic $19 billion purchase of WhatsApp, which rocked the technology landscape. The company continues to be the leader in everything from paid search to the Android operating system. The UBS price target for the undisputed technology leader is $1350, and the consensus target is $1317.38. Google was trading Friday right around the $1205 level.

Microsoft Corp. (MSFT) has finally settled the CEO issue by appointing Satya Nadella to be only the third chief executive in the history of the software giant. Nadella recently served as the executive vice-president of Microsoft's cloud computing offerings since July 2013. Although cloud computing remains one of the smaller parts of Microsoft's current business, the cloud computing enterprise group more than doubled customers in the latest quarter. Cloud computing is a huge part of the OCP initiative. Investors are paid a nice 3.1% dividend. The UBS price target is $43, and the consensus target is $38.42. Microsoft traded Friday at the $38.25 level.

Oracle Corp. (ORCL) has sputtered over the past year, giving investors a prime entry point to the stock. The technology giant is making a push into cloud computing, application virtualization and software-defined networking. Application virtualization and software-defined networking should be key areas of revenue growth going forward. Shareholders are paid a 1.3% dividend. UBS has set a $42 price target on the stock. The consensus target is $38.92, and Oracle traded Friday at $38.29.

While the call on Wall Street should not go unrewarded, investors should remember that the sector underperformed the market last year. What that gives is a one-two punch for shareholders who bought stock or are ready to. With the ability to grow earnings, very low debt and valuations that are not nearly as stretched as some sectors, large cap tech stocks have the proverbial room to run. That is exactly what most of the top Wall Street firms are counting on.

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