Cognizant Should Regain Momentum Soon

by Jon Markman | July 12, 2011 4:31 am

Top10icontext1 Cognizant Should Regain Momentum Soon[1]Cognizant Technology Solutions Corp. (NASDAQ:CTSH[2]) is an information technology outsourcing specialist that has also been one of the best stocks of the past decade. But make no mistake, Cognizant still has a lot going for it.

Cognizant specializes in technology consulting, complex system development and integration, enterprise software implementation and maintenance, data warehousing, business analytics, application testing, infrastructure management and business process outsourcing. CTSH stock focuses on large customers in financial services, health care, manufacturing, retail and logistics.

But due to Congnizant Technology’s strong ties with India — most of its employees are in India and it plans to spend more than $500 million to expand into four Indian cities — Cognizant has had the bad luck to be lumped in with some of its larger Indian outsourcing peers, including Infosys (NASDAQ: INFY[3]), Wipro (NYSE: WIT[4]), and Tata Consulting. Some analysts contend that after years of strong growth these firms face hurdles as they adopt an outcome-based model, rather than a strictly cost-based model. That means offering solutions and tangible results beyond just saving some bucks on labor costs.

Cognizant does offer that price break. The low wages in India allow it to compete effectively as it offers its services to 700-plus clients worldwide. But Cognizant’s nimble and aggressive move into the cloud put it ahead of its Indian peers in the tech game, according to a recent report in the Financial Times. The company has made itself a “cloud” computing advocate with the ability to offer clients outsourcing services provided by their own staff or by Cognizant staff.

As a result, Goldman Sachs (NYSE:GS[5]) in recently reiterated its “buy” rating on Cognizant, and Wells Fargo (NYSE:WFC[6]) reiterated its “overweight” rating and said the current weakness is a buying opportunity. I agree — especially when you consider that Cognizant stock tends to do particularly well in July, as you can see in the chart below. And this historical pattern appears to be playing out again this year.

So I would like you to buy Cognizant stock under $75 for initial target of $81.50. For more leverage, consider the August $75 calls on CTSH stock if they dip to $2.00.

Check out the other FREE stock picks that make up InvestorPlace.com’s Top 10 Stocks for 2011.[7]

Endnotes:
  1. [Image]: http://investorplace.com/best-stocks-for-2011/
  2. CTSH: http://tradersadvantage.investorplace.com/getaquote/?STOCK_VAR=CTSH
  3. INFY: http://tradersadvantage.investorplace.com/getaquote/?STOCK_VAR=INFY
  4. WIT: http://tradersadvantage.investorplace.com/getaquote/?STOCK_VAR=WIT
  5. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  6. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  7. Top 10 Stocks for 2011.: http://investorplace.com/best-stocks-for-2011/?cp=msn&cc=synd

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