One thing almost universally agreed upon on Wall Street is that for this quarter, 2016 and far beyond, technology will continue to expand innovation and growth at stunning rates, and it should remain an overweight sector by most money managers. But what about the fallen angels? Can they come back and compete with the rest of the striking momentum firms, especially the newer ones with game-changing technology?

History says that it is entirely possible. Apple was left for dead trading in the low single digits until Steve Jobs returned to revolutionize first music, and then the cellphone transformation to the smartphone. We screened the Merrill Lynch technology sector research universe for out-of-favor tech stocks that have solid potential for future growth. To meet our criteria, the companies had to be rated Buy at Merrill Lynch.

Alibaba

This time last year, this company was the hottest thing on the planet. Alibaba Group Holding Ltd. (NYSE: BABA) is the largest online and mobile commerce company as measured by gross merchandise volume, and it had the highest profile initial public offering of 2014. But the stock has acted horrible since printing highs at $120 in mid-November of last year.

Merrill Lynch feels the dominance in Alibaba’s core business, the very hard barrier to entry for competition and new growth opportunities like cross-border e-commerce make the stock extremely attractive. With most of the damage to the China equity markets seemingly subsided for now, the residual effect to the company may subside.

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Alibaba recently made a nonbinding offer to acquire the 82% of Youku that Alibaba doesn’t already own. This comes as little surprise to Wall Street, given Jack Ma’s vision for digital content and delivery. The Merrill Lynch team sees a few of the leading video sites continuing to struggle, but they also see a ton of synergies overall in the combination.

The Merrill Lynch price target for the stock is a conservative $96. The Thomson/First Call consensus price target is $90.58. Shares closed Tuesday at $71.79.

Hewlett-Packard

This old-school tech stock has been sold off all year as investors feel that the personal computer (PC) slowdown in sales could continue to hurt earnings. Hewlett-Packard Co. (NYSE: HPQ) stock is down a whopping 25% year to date and trades at a very low 8.2 times 2015 estimated earnings.

Some Wall Street analysts feel that weak PC demand could continue to negatively impact HP’s revenue and free cash flow. The company again posted so-so earnings in August. Profits declined 13% in the quarter, further promoting a company split in order to reduce costs. Hewlett’s net income dwindled to $900 million, from $1 billion in the same quarter last year. Total sales for the company decreased 8% to $25.3 billion, from $27.6 billion last year.

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The company is focused on splitting into two entities, a move that most analysts feel will be a very positive catalyst event. One company, to be named Hewlett Packard Enterprise, will focus on selling technology like servers and data center gear to businesses. The other, to be called HP, will sell printers and personal computers. Merrill Lynch and other Wall Street analysts feel that the company has among the least downside risk of the large IT hardware companies and suggest investors buy stock before the split.

HP investors receive a 2.43% dividend. Merrill Lynch has a $37 price target. The consensus target is $35.54. Shares closed Tuesday at $28.56.
Tableau Software

This had been a red-hot stock but has taken a huge hit since July and is offering aggressive accounts a great entry point. Tableau Software Inc. (NASDAQ: DATA) provides business analytics software products in the United States and internationally. Its Tableau Desktop is a self-service analytics environment that empowers people to access and analyze data independently. Tableau Server and Tableau Public are a free cloud-based platform for analyzing and sharing public data. The company’s business intelligence platform with data management and scalability has the security to foster the sharing of data.

Many analysts feel that Tableau 9.0’s Data Prep capabilities are a substantial step forward for the company, and they remain convinced that demand for Tableau Server remains quite robust. Third-quarter numbers are also expected to be solid, with good upside potential to fourth-quarter results.

In addition, the company announced the launch of its Shanghai operations, Tableau (China), as the company expands in China to better serve customers and partners locally. With 1.3 billion people, a quickly expanding urban economy and exponential rates of Internet and smartphone penetration, China generates an immense amount of data annually. Tableau can help bring that data to life for corporations seeking to assimilate the huge data input.

The Merrill Lynch price target is a huge $135, and the consensus target is $120.22. Shares closed Tuesday at $86.81.

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Western Digital

This is a leader in the total addressable hard disk drive (HDD) market at a very impressive 43.6%. Western Digital Corp. (NASDAQ: WDC) reported earnings that were better than expected but missed on revenues in the second quarter. During the second quarter, Western Digital shipped 48.5 million hard drives at an average selling price of $60. While selling prices for the quarter were down from $61 in the previous quarter, they were up from $56 in the year-ago quarter.

The drop off in the PC business helps to spur initiative in the company’s cloud business, and analysts estimate that the company’s gross profit contribution from Business Critical (cloud) drives will exceed that of PCs by the second half of next year. Of all the stocks beaten down due to the poor PC environment, the Western Digital may have the most upside potential.

The most compelling news is that the company just announced it is buying SanDisk in a deal valued around $19 billion. This is an expensive, but very strong addition to Western Digital’s current offerings. The company should significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.

Western Digital investors receive a 2.67% dividend. Merrill Lynch has a $104 price target, and the consensus figure is lower at $100.91. Shares closed Tuesday at $74.86.

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When these kinds of top stocks are put on sale, there is very little risk for long-term, patient, risk-tolerant investors. Some have solid and mature franchises, offer very good value and could be potential takeover targets. The best part is the fallen angel trade picks could have big return potential and less downside risk than crowded momentum stocks.

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