Merrill Lynch’s Best Technology Ideas for 2014

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The technology sector has been identified across the firms that we cover as a solid place for investors to deploy capital for 2014. The analysts at Merrill Lynch are in lockstep with the rest of Wall Street with their bullish assessment of the sector. They think that innovation across hardware, software and mobility will drive the technology sector in 2014. They highlight innovative hardware, the social/mobile consumer and cloud collaboration as three outstanding themes.

In a new research report, the Merrill Lynch team points out that the sector is trading at the steepest discount to the market in its history. Technology has lagged returns in the S&P 500 over the past three years. The top companies have among the cleanest and best balance sheets. The top stocks also have among the highest foreign exposure. In addition the sector has the largest stock buyback and fastest dividend growth. When you add all the positives up, it seems that 2014 might be a banner year for technology.

Here are the best technology stock ideas from Merrill Lynch for 2014.

3D Systems Corp. (NYSE: DDD) develops, manufactures and markets 3D printers, print materials, on-demand custom parts services and 3D authoring solutions for professionals and consumers. The company’s primary print engines comprise stereolithography, selective laser sintering, multi-jet modeling, film transfer imaging, selective laser melting and plastic jet printers, as well as ZPrinters. This has been a super-hot momentum stock and may have room to run in 2014. The Merrill Lynch price target is $90. The Thomson/First Call target is $85. Shares closed Thursday at $83.19.

Adobe Systems Inc. (NASDAQ: ADBE) makes the list this year. With the release of fourth-quarter results this week, the company once again reported faster-than-expected adoption of subscription licenses for its Creative Cloud (CC) business, as more of its clients chose enterprise term licensing agreements. Adobe expects to have nearly 3 million paid CC individual and team subscriptions by the end of fiscal 2014. Merrill Lynch has a $67 price target, and the consensus estimate is $63. Adobe closed Thursday at $58.13.

Automatic Data Processing Inc. (NYSE: ADP) makes the Merrill Lynch list. The company provides technology-based outsourcing solutions to employers and vehicle retailers and manufacturers worldwide. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services and Dealer Services. The company also provides Wall Street valuable employment data. Investors are paid a 2.4% dividend. The Merrill Lynch price target is $88. The consensus estimate is much lower at $78. ADP closed Thursday at $79.42.

Avago Technologies Ltd. (NASDAQ: AVGO) has entered into a definitive agreement to acquire LSI for $6.6 billion in cash. LSI shareholders will receive a cash payment of $11.15 for each LSI share. The strategic move was aimed to diversify Avago’s existing business line from wired infrastructure, wireless and industrial businesses to the storage chip market to boost revenues in the face of industry consolidation and challenging macroeconomic conditions. Investors are paid a 1.9% dividend. Merrill Lynch has a $60 price target, the same as the consensus target. Avago closed Thursday at $51.44.

Barracuda Networks Inc. (NYSE: CUDA) was a top IPO this year and another tech deal that worked out well. The stock caught an upgrade to Buy two weeks ago from tech boutique shop Pacific Crest Securities. We profiled the stock in early December as a top name to own in 2014. The Merrill Lynch price target for the stock is $26. The consensus price target for the stocks is $26.50. Barracuda closed Thursday at $25.50.