PREVIEW - Bulls see tech stock bargains ahead of earnings

A sign is shown at the entrance to the headquarters of Intel Corporation in Santa Clara, California February 2, 2010. Some investors are betting on major technology stocks ahead of the earnings season kicking off next week, seeing them as oversold on fears about the slowing U.S. and European economies.

BOSTON (Reuters) - Some investors are betting on major technology stocks ahead of the earnings season kicking off next week, seeing them as oversold on fears about the slowing U.S. and European economies.

The biggest names in technology will release quarterly results this month, starting with Intel Corp and Google Inc next week, followed by IBM, Apple Inc and Microsoft Corp the following week.

Caris & Co analyst Craig Ellis lists Intel among the tech companies that he thinks have become good values, thanks in part to fears over problems in Europe that have pushed the chip maker's shares down about 17 percent since the end of April.

"To me, that extreme shift in sentiment is a little bit worse than the demand impact we've seen so far," Ellis said.

Analysts expect Intel and rival Advanced Micro Devices Inc to benefit this year and next from companies that are replacing aging PCs, servers and other equipment, spurred by the launch of Microsoft's Windows 7 operating system.

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"Windows 7 is gaining good acceptance and helping with the refresh cycle," said Tim Ghriskey, chief investment officer for Solaris Asset Management, which oversees about $2 billion. "We think we are going to see Windows 7 numbers above expectations."

Wall Street analysts have, on average, been raising their profit forecasts for the technology sector. They now expect tech companies in the S&P 500 Index to report a 56.5 percent year-on-year increase in second-quarter profit. That's up from expectations for a 43 percent increase jump on April 1.

The 76-member S&P Information Technology Sector Index has fallen about 10 percent over the past three months, primarily on macroeconomic worries, analysts say.

"People think that a slowdown is coming," said Mike Vitek, an analyst with Fiduciary Management Associates, which manages about $1.5 billion in assets. "People think that the sovereign debt crisis in Europe has got to have an effect and that China's economy is clearly slowing."

Kim Caughey, a senior analyst with the Fort Pitt Capital Group, which manages about $940 million, said that such pessimism creates buying opportunities. "People are going to get worried," she said.

She's betting that companies including Intel, Microsoft, International Business Machines Corp, EMC Corp and NetApp Inc will post strong earnings as businesses buy new personal computes, servers and storage equipment -- items they held off on purchasing during the recession.

Zach Rosenstock, an analyst with Wayne Hummer Wealth Management, which has about $1 billion in investments, also is betting against the prevailing pessimism.

"When you are looking for sustainable earnings growth and cash generation, there is no better place to look than tech," he said.

One of Wayne Hummer's biggest holdings is Apple. Rosenstock believes it makes sense to buy shares of Apple heading into earnings on July 20 because it may announce better-than-expected sales of the iPad, which was launched in April.

"The iPad is a huge, untapped market that I don't think people can properly size because it's tough to get your mind around," he said.

Benoit Flamant, chief executive of IT Asset Management, which manages some 160 million euros ($202 million), said positive earnings season could spur a month-long rally in tech stocks.

"We see no indication that things are deteriorating," he said. "All indications are that consumer IT and corporate IT are strong. The economy is improving. Even in Europe."

One of his top stock picks ahead of earnings is Google, which reports on July 15. The Internet giant's shares have been beaten down amid concerns about competition with Apple and fallout from investigations into the company's collection of personal data via wireless networks. "I think there's an over-reaction there," he said.

(Additional reporting by Alex Dobuzinskis; editing by Carol Bishopric)