BofA/Merrill Issues Big, Bullish Report On Tech, And Says To Buy These 10 "Titans" Of The Industry


Photo: BofA/Merrill Lynch

Bank of America/Merrill Lynch is out with a big, bullish report on tech, advising investors to up their allocation of tech stocks in 2011.The team lead by David Bianco argues:

Since November, we have highlighted that Tech provides the best reward vs. risk opportunity. Tech has strong sales and earnings growth driven by high foreign exposure and rising business spending, one of the highest EPS revision ratios, and was one of only two sectors whose 4Q net margins improved on a sequential and yr/yr basis. Yet at only 14x our 2011E EPS, Tech is trading among its cheapest valuations since 1995. In addition, strong balance sheets and low payout ratios allow Tech to increase cash distribution to shareholders.”

Among the themes it likes right now: Cloud computing, dividend growth, and share repurchases.

As for valuation, it notes:

Now more than ever, we believe the “Tech Titans” (top 10 earnings contributors to the S&P Tech sector) are the best way to add Tech exposure. On average, the Tech Titans are trading at 13x 2011 EPS compared to rest of the Tech trading at 16x; this is despite greater expected EPS growth, better earnings revisions and higher dividend yields.

It’s advising investors to bet on the tech “titans” that all fit into these themes somehow.


% of tech sector earnings: 13%

2011 estimated PE: 15.1

2011 estimated PE growth: 39.1%

Source: BAML


% of tech sector earnings: 12%

2011 estimated PE: 10.3

2011 estimated PE growth: 14.2%

Source: BAML


% of tech sector earnings: 10%

2011 estimated PE: 12.5

2011 estimated PE growth: 13.2%

Source: BAML


% of tech sector earnings: 7%

2011 estimated PE: 9.1

2011 estimated PE growth: 13.4%

Source: BAML


% of tech sector earnings: 7%

2011 estimated PE: 10.5

2011 estimated PE growth: 0.1%

Source: BAML


% of tech sector earnings: 6%

2011 estimated PE: 11.3

2011 estimated PE growth: 4.0%

Source: BAML


% of tech sector earnings: 5%

2011 estimated PE: 18.2

2011 estimated PE growth: 16.4%

Source: BAML


% of tech sector earnings: 5%

2011 estimated PE: 15.1

2011 estimated PE growth: 15.6%

Source: BAML


% of tech sector earnings: 3%

2011 estimated PE: 18.8

2011 estimated PE growth: 19.0%

Source: BAML


% of tech sector earnings: 2%

2011 estimated PE: 10.9

2011 estimated PE growth: -1.4%

Source: BAML

Meanwhile, here'ws how BofA/ML has adjusted its sector tilts

Now to think from a contrarian perspective

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