These 3 Tech Stocks Could Jump +20% to +40% in No Time

While staying focused on your best long-term ideas, it also helps to boost your portfolio by looking for stocks with a chance for quick moderate gains. And in the tech sector, we’ve seen all kinds of headline-induced winners in the past six months, thanks to M&A activity, robust quarterly results and other catalysts. [Catalyst Investing Secrets Revealed]

Here are three more names that could be quick risers during the next few months.

1. Motorola (NYSE: MOT)
This former tech stalwart has been on the mend after a disastrous few years. This $25 stock in 2007 fell below $5 in early 2009, but is now back up above $7.50. Yet by January, shares could hit $9 or even $10 — good for +15% to +30% gains. Here’s why…

More than a year ago, Motorola announced that it would cut itself into two pieces, with one focusing on enterprise products and the other focused on mobility products, which I discussed here.

Since I profiled Motorola back in early September, shares have been roughly flat while the Nasdaq has risen more than +15%. But we’re now much closer to the Motorola break-up, which should take place in January.

Shares of Motorola have missed out on the recent tech rally on concerns that sales may take a hit once Verizon (NYSE: VZ) starts selling Apple’s (Nasdaq: AAPL) iPhone. Yet at a recent meeting with analysts, management noted that sales to other wireless operators such as AT&T (NYSE: T) should gain further traction, offsetting any market share losses. The company also offered a peek at the product roadmap for smartphones in 2011, which left analysts quite impressed. The company also plans to release a tablet computer in late winter, and any early advanced buzz could also help shares.

Over in the enterprise division, there had also been concerns that government-related revenue may cool, but management also assuaged the investor community at its recent meeting, noting that the emergency responder communications equipment segment remains subject to a strong upgrade cycle, despite government budget pressures. [See: “12 States in Financial Distress”]

The key takeaway from the recent meeting with analysts and large investors: “Motorola said that they had spoken to customers and scrubbed order books, and come away with a high confidence in their outlook,” noted analysts at Citigroup, which have a $9.50 target on shares. Shares of Motorola have drifted lower in five of the last six sessions, which creates a fresh entry point for investors looking to play the upcoming spin-off.

2. Symantec (Nasdaq: SYMC)
“You’re going in the wrong direction.” That’s the message being sent by activist investors such as John Paulson and Relational Investors to Symantec after the technology firm closed on a $1.3 billion deal in August to acquire an identity verification business from Verisign (Nasdaq: VRSN). Many investors have been imploring the firm to break itself in two, not add yet more layers. Ever since Symantec acquired the storage company Veritas back in 2005, it has been unable to generate any real synergies, and its stock price has gone nowhere.

My colleague Ryan Fuhrmann has noted that Symantec would make an ideal takeover candidate.
After all, shares trade for just 11 times projected fiscal (March) 2012 profits. That’s a far cry from the multiple of 19 that Intel (Nasdaq: INTC) paid for rival McAfee this summer.

Symantec’s CEO Enrique Salem has repeatedly insisted that the company is not for sale, nor is a break-up in the cards. But on Monday, press reports circulated that Symantec has relented and is now seeking the advice of investment bankers. Whether any deal comes to pass is an open question. So here’s the play. Assume that a deal starts to come together in the next 60 days. If any deal is announced for a part of the company, it could yield a small gain for the stock. If a deal is announced for the whole company, you may be looking at +30% to +40% upside. If no such deal materializes by the end of January, you can close out that position, likely with zero gain but also zero loss.

3. Dell (Nasdaq: DELL)

You can’t blame Dell executives for wanting to throw up their hands and give up on trying to please Wall Street. The Austin, TX technology firm delivered stellar profit results on November 18, and shares are actually lower since then. Surging profits and tepid shares means the odds just increased that Dell will take more radical steps to bring its stock more appreciation.

The biggest knock on Dell has been that profit margins are uninspiring because the company operates in a commoditized business environment. Yet Dell defied those concerns by posting gross margins of 19.5% in the most recent quarter. You’d have to go back to 2000 to find the last time Dell posted higher gross margins on a full-year basis. That’s the payoff from Dell’s move into higher-margin niches and repeated cost-cutting. Dell’s operating margin of 7.6% was the highest quarterly figure in 19 quarters.

Assuming that margin performance can be maintained, Dell should again be seen as a cash flow machine. Free cash flow had fallen from $5 billion in fiscal (January) 2005 to just $1.4 billion in fiscal 2009. Free cash flow rebounded to $3.5 billion in fiscal 2010, and if current trends continue, Dell is back on track to hit that mighty $5 billion figure in the fiscal year that begins next February.

Analysts generally agree that the stock is too undervalued. ISI Group rates the stock as a “Hold,” noting that the company is still too reliant on consumers, but they still think the shares have +20% upside to $16. Brean Murray thinks shares will trade up to $17 or 7.4 times their projected fiscal 2011 profit forecast when cash is excluded.

Yet it’s that large and growing cash pile that is the real story here. Dell has consistently chafed at what it sees as a too-low stock price and has hinted that it may look to shake things up, perhaps by going private or buying back a massive block of stock in a Dutch Auction. Any such move would likely push shares into the upper teens. Could such a move come soon? The strong operating trends and non-responsive stock could set the stage for a major move.

Action to Take –> At a minimum, these three stocks look to hold their own thanks to strong balance sheets (Dell), low valuations (Symantec) or shareholder-friendly moves (Motorola). Any one of these stocks could make for positive headlines once again in January or February and possibly deliver quick gains to investors who buy now.