Tickers in this Article: GLW, LAVA, ONNN, GE, IBM
Still hearing the echoes of not one but now two market meltdowns, investors have not been as keen on the technology sector during this bull market as they have been with prior ones. The companies have been performing very well - it's just that the stocks that haven't been firing on all cylinders. As such, the sector may be one of the market's bigger bargains even as we head into the latter part of the cycle.

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Get More, Pay Less
There are a couple pieces of evidence for the undervalued argument. The first one is simply that technology stocks are priced more like value names than like growth names. This is a recent phenomena.

Many tech names in the S&P 500 index currently trade at 13.1 times last year's earnings. That's more like the average forward P/E of 12.4 for the S&P 500's value components, and less than the average P/E of 16.9 for its growth stocks.

Earnings Growth
The other layer of evidence that tech may be under-appreciated at this point is actual earnings growth.

While tech has its doubters, these companies' bottom lines have been climbing that wall of worry. The large cap tech sector was one of only five that actually grew income in 2009, and it's continued to grow at a market-beating pace. 2010's earnings growth is on pace to roll in at 50%, with 2011's income growth projection currently at 17%.

The S&P 500 as a whole is expected to report a 47% increase in 2010's income, and only a 15% improvement in 2011. Even then, the broad market's apparent rapid growth isn't actually all that impressive. Remember, many of the S&P 500's stocks are still well shy of 2007's peak levels; any year-over-year comparisons remain sand-bagged comps.

Take General Electric (NYSE:GE) as an example. Last year's per-share earnings of $1.15 topped 2009's $1.03 by 11.6%. But, that still doesn't even come close to 2007's $2.20.

Tech Getting the Job Done
Technology, on the flip side, is already well beyond peak earnings from late 2007 - proof that these companies are getting the job done despite doubts. International Business Machines - IBM (NYSE:IBM) - illustrates that idea. 2010's EPS of $11.58 topped 2009's $10.01, both of which were better than 2007's $7.13. In fact, IBM is working on its seventh straight year of bottom line growth.

The tech sector has easily earned and retained a buy rating. But which tech stocks? Here are three ideal ones. Each is a leader in at least one valuation category (earnings growth, P/E ratio, PEG ratio), and isn't too shabby by other measures either.

Lowest P/E Ratio
This stock, and the industry for that matter, has probably seen more than its fair share of ups and down (more downs than ups). Semiconductor maker ON Technologies (Nasdaq:ONNN) is just coming off its best year ever. Without using any accounting tricks, it has a trailing P/E of 15.5 and forward-looking (12-month) one of 7.71, making it desirable for investors.

Strongest Earnings Growth
If Magma Design Automation (Nasdaq:LAVA) hadn't already posted a significant improvement in earnings on a rolling year-over-year basis, it might be tough to believe it could actually grow income by 59% in fiscal 2012 (which begins in a couple of months). It did it once though, and can do so again.

Lowest PEG Ratio
The PEG ratio, like any other valuation measure, isn't perfect. It is a great beginning of an answer to the "growth at what price?" question though, and in most regards paints a pretty complete picture.

In any case, Corning Inc. (NYSE:GLW) with its PEG ratio of 0.96 seems to have found the best balance profit growth and current valuation. GLW is priced under 10 times its past and future earnings. It grew earnings by 41%, and is on pace for modest growth this and next year. With more beats than misses over the last couple of years though, the G in the PEG ratio may end up being bigger than expected.

Bottom Line
It wouldn't be accurate to say "you can't go wrong with tech right now," because you can. With the group as a whole being undervalued and doing well though, it's not hard to find a bargain that is poised for gains. The above three are a great place to start, and perhaps even finish, the hunt. (If these numbers have you in the dark, these easy calculations should help light the way. Check out How To Find P/E And PEG Ratios.)

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