Merrill Lynch Says Tech Hardware Still the Stocks to Own in 2014

With the Nasdaq up about 9%, the most of any of the top indices this year, and the technology sector absolutely on fire, up almost 20% year-to-date, investors have to be thinking it could be time to take profits and rotate money out of the sizzling sector. If they are leaning that way, Merrill Lynch makes the case that this could be absolutely the wrong move for the rest of 2014.

Merrill Lynch’s quantitative strategists point out that the technology hardware sector remains the firm’s most preferred sector. They stress that the sector typically benefits from an improving macro environment, has aggressive styles for an economic upturn and also has a strong combination of earnings and price momentum. All of these may keep the sector trading at a sizable price-to-earnings discount. In other words, Merrill Lynch feels that it is time to stay long or start buying into the top stocks.

We screened the Merrill Lynch research database for top tech hardware stocks rated Buy. We found five stocks that could make solid additions to an aggressive growth portfolio.

Cisco Systems Inc.‘s (NASDAQ: CSCO) dominance in wireless equipment, and its undisputed “800-pound gorilla” status in the industry makes the company an attractive stock to buy now. Earnings for the quarter were solid, but after the big numbers in May, some Wall Street analysts were disappointed. Many firms on Wall Street, including Merrill Lynch, feel that the stock is providing investors a good entry point, despite the fact that some corporate restructuring lies ahead.

Cisco shareholders are paid a solid 3% dividend. The Merrill Lynch price target is $28. The Thomson/First Call consensus target for the networking giant is $26.15. Cisco closed Friday at $24.99 a share.

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