Top Large Cap Tech Will Benefit From Bigger IT Budgets

By Trey Thoelcke Published Apr 2, 8:40AM EDT

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A recent survey of chief information officers by UBS shows that expected information technology (IT) budget growth this year should be right-in-line with prior surveys. Most importantly, more than 60% of the CIOs are increasingly optimistic about spending this year. Security, private cloud and virtualization are top priorities. In a new report, the UBS team says the large cap tech leaders will be the ones to benefit the most.

Here are the top large cap tech stocks to buy at UBS rated Outperform that should benefit the most from increased IT spending.

Cisco Systems Inc. (NASDAQ: CSCO) remains the networking leader, and it may be forced to start to show real growth to Wall Street after three straight subpar 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 it bought out the remainder of its majority-owned data center technology start-up called Insieme, in a deal that could cost up to $863 million. The company also announced recently its entry into cloud computing with the Cisco Cloud Computing division. Investors are paid a solid 3.4% dividend. The UBS price target for the stock is $26.50. The consensus estimate from Thomson/First Call is $23.71. Cisco closed trading Tuesday at $23.10.

Cognizant Technology Solutions Corp. (NASDAQ: CTSH) provides IT, consulting and business process outsourcing services worldwide. The company operates through four segments: Financial Services; Healthcare; Manufacturing, Retail, and Logistics; and Other. It offers consulting and technology services, such as IT strategy, program management, operations improvement, strategy and business consulting services. The UBS price target is set at $58, and the consensus target is $56.39. The stock closed Tuesday at $51.68 a share.

EMC Corp. (NYSE: 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. This make for a great one-two punch for EMC. Investors receive a 1.6% dividend. The UBS price target is $30, and the consensus is at $29.45. EMC closed Tuesday at $27.79.

Juniper Networks Inc. (NASDAQ: JNPR) has been doing almost everything right. UBS sees good things going forward and has an Outperform rating on the stock. Positive activist shareholder moves combined with a solid product cycle have made the stock a favorite on Wall Street. By vendor, Juniper posted the strongest year-over-year growth, at 38.7%, in the key switching market. For the near term, Juniper may be one the best stocks to own. The UBS price target is $33, and the consensus target is $29.21. Shares closed Tuesday at $26.43.

Microsoft Corp. (NASDAQ: MSFT) made an almost game-changing announcement when the company recently said it would offer as a downloadable app from the Apple App Store its widely used Office suite, which includes the popular Word, Excel and PowerPoint applications. This strategy is a sharp contrast to the past, when Microsoft was battling Apple to sell smartphones and tablets. Now, having recognized the fact that Apple is tops, Microsoft is looking to build apps for the iPads and harness the hundreds of millions of users. Investors are paid a nice 2.8 % dividend. The UBS price target is $46, and the consensus target is $39.60. Microsoft closed Tuesday at $41.42.

Oracle Corp. (NYSE: ORCL) has sputtered over the past year but finally has started to perk up. The stock could still be giving investors a prime entry point. The technology giant is making a push into cloud computing, application virtualization and software-defined networking. The latter two should be key areas of revenue growth going forward. Shareholders are paid a 1.2% dividend. UBS has set a $42 price target on the stock. The consensus target is $40.72. Oracle closed Tuesday $41.49.

VMware Inc. (NYSE: VMW) has been on fire and is a leader in cloud storage software. Its cloud computing service is a new offering for its customers. The company’s vCloud Hybrid Service has not been designed or marketed as a standalone public cloud as of yet. Many analysts believe that on a pricing basis it is one of the more expensive offerings. The ability to tie its software solutions in with public cloud service may be a huge winner in the future. The UBS price target is $115, and the consensus target is $109.48. The stock closed Tuesday at $111.80.

As corporate executives confirm an improvement of spending levels, this can be an easy pick for investors. Follow the leaders. The UBS list is dominated by the companies that are leaders in their sectors. Corporate America intent on building out critical IT applications for their companies do not want anybody but the best. That is exactly why these top names to buy are represented in the UBS list.

About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.