A Goldman Sachs Group (GS)
analyst raised his rating for the hardware sector to attractive from neutral on July 10, predicting regular seasonal trends will re-emerge later this year and higher IT spending and corporate tech upgrades will follow next year.
In a client note, Goldman analyst David C. Bailey upgradedDell Inc. (DELL) and Seagate Technology (STX) to buy from neutral and downgraded Western Digital (WDC) andIBM Corp. (IBM) to neutral from buy. The analyst also reiterated buy ratings forHewlett-Packard Co. (HPQ) and Arrow Electronics Inc. (ARRW).
Bailey said that, until now, checks and the sluggish economic environment have made him cautious regarding enterprise demand. He's more optimistic now, though, saying he expects "greater upside than downside to estimates into the seasonally stronger half of the year and in 2010."
"This, combined with a 25% decline in the Goldman Sachs Technology Index since the peak in August 2008, creates a compelling buying opportunity, in our view," he said.
Bailey called computer maker Dell his "top pick," citing factors like its compelling operating leverage and rising confidence that companies will upgrade their computers next year. Dell shares added 2 cents in afternoon trading July 10 to $13.17.
He also said that, due to their operating leverage and share underperformance, he feels positive about hard drive maker Seagate and electronic components and computer products maker Arrow. Seagate shares rose 37 cents, or 3.9%, to $9.90, while Arrow shares fell 11 cents to $20.03.
The analyst spoke favorably about computer and printer maker HP as well, pointing toward a "rebound" in its printer business and expectation of seasonally increased PC sales in the second half of 2009. HP shares fell 16 cents to $37.15.
Bailey downgraded Seagate competitor Western Digital, though, along with HP competitor IBM. He said that he had preferred Western Digital over Seagate but the company's advantages are now priced into the stock. Regarding IBM, Bailey predicted investors will start focusing more on growth and leverage and less on the ability to keep up earnings during a difficult economy.
Western Digital shares shed 38 cents to $25.29, while IBM lost $1.63 to $100.45.
Bailey also said he now rates shares of EMC Corp. (EMC) and NetApp Inc. (NTAP) neutral. EMC shares rose 9 cents to $12.85, as NetApp shares dipped 1 cent to $19.