Don’t look now, but the momentum tech crowd has started to get a little trigger happy when it comes to selling after the Facebook disaster last week, and the tech-heavy Nasdaq has been getting pounded as investors that have made big money in tech stocks cash in their chips. This should come as zero surprise to long-time investors, and if you have big tech gains it may make sense to at least sell partial positions.
The question is what to do with the proceeds? One good idea is to look for contrarian stock picks, especially in technology, but also in sectors that investors have shunned in 2018, like telecommunications. We screened our 24/7 Wall St. research database and found five great contrarian calls, all rated Buy.
AT&T
This company recently won its battle to acquire Time Warner and may become a much bigger entertainment player. AT&T Inc. (NYSE: T) is the largest U.S. telecom company by market capitalization. It provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections with 77 million postpaid subscribers.
AT&T is also the world’s largest provider of pay TV. The company has TV customers in the United States and 11 Latin American countries. The company helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions as well. With shares trading at a very cheap 9.4 times estimated 2018 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
The company reported better-than-expected second-quarter earnings updated 2018 earnings guidance to the “high end” of the prior range.
AT&T shareholders receive a 6.27% dividend. Merrill Lynch just upgraded the shares to Buy on Monday and has a $37 price target. The Wall Street consensus target is $36.64. The shares closed trading Monday at $32.
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Duke Energy
Utilities are usually very out of favor in a rising interest environment. Duke Energy Corp. (NYSE: DUK) operates as a regulated utility company in the United States and is based in Charlotte, North Carolina. The company operates regulated electric utilities in the Midwest, Florida and the Carolinas and supplies electric service to approximately 7.5 million residential, commercial and industrial customers. Duke owns 50,000 megawatts of capacity.
The regulated gas utilities serve more than 1.6 million customers in the Carolinas and Ohio. A commercial arm owns contract renewables and pipelines across the United States. Merrill Lynch upgraded the stock in June and noted why:
We upgrade shares to Buy and raise our price target as we up estimates are a victim of large-cap regulated utility sell-off. Wall Street still does not believe management at $5.19 versus the Merrill Lynch estimate of $5.35 and implied range of $5.30-5.60. Story has been sizably de-risked in North Carolina, trading at 3-yr low and a 15% discount to peers on 2020 price to earnings.
Shareholders receive a 4.59% dividend. The Merrill Lynch price target stands at $84, and the consensus target is $82.14. Shares closed Monday at $80.77. The company will report earnings on Thursday.
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Ford
This is a solid value play now and may offer investors one of the best contrarian plays. Ford Motor Co. (NYSE: F) is one of the world’s largest vehicle producers, with over 6 million units manufactured/sold globally. The company has made significant progress executing on its One Ford plan and delivering best-in-class vehicles. It also remains committed to positioning itself well within the evolving auto industry through balanced investments across electrification, autonomy and mobility services.
The company posted light second-quarter numbers and lowered the overall 2018 outlook. Some analysts on Wall Street are concerned about a lack of direction at Ford, and more recently the postponement of its September analysts day. Despite the setbacks, the F-100 remains the best-selling truck in the United States.
Shareholders receive a 5.97% dividend. Jefferies recently upgraded the stock to Buy and has a $13.50 price target. The consensus price target is $11.46, and shares closed Monday at $10.07.
Juniper Networks
This solid technology stock has been on a long roller-coaster ride for investors over the past few years. Juniper Networks Inc. (NYSE: JNPR) is a provider of high-performance network infrastructure to service providers and enterprises. Key products include IP-based routers for service provider core and edge networks, security solutions and high-end enterprise routing equipment. Juniper’s products support converged data, voice, video and wireless applications across extended networks.
Deutsche Bank just upgraded the shares to Buy from Hold and noted this in a new research report:
Last Friday’s -7% selloff in the stock (S&P 500 -0.7%) following a better than feared second quarter Print and below consensus third quarter Guide (primarily relating to Switch Router upgrade timing at a handful of Cloud and Service Provider customers) is a reasonable entry point in our view into “robust” Switch Router and Next Gen Security refresh cycles, starting fiscal year 2019.. Fiscal year 2020 and 2021 is likely an “early inflection”.
Shareholders receive a 2.74% dividend. The $25 Deutsche Bank price target was raised to $32, and the consensus price objective is $26.45. Shares closed Monday at $26.30.
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Western Digital
This is a leader in the total addressable hard disk drive (HDD) market. Western Digital Corp. (NASDAQ: WDC) designs, manufactures and markets hard disk drives for use in enterprise storage, servers, desktop and laptop computers and consumer electronic devices. It also has a growing solid state drive and storage systems portfolio and is currently the third-largest enterprise solid state drive manufacturer.
The company is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.
The stock got hit last week despite reporting good earnings, and Merrill Lynch said this:
The company posted a solid beat for the second quarter with EPS at $3.61 and $0.10 above our estimates. Upside came from PC and consumer HDDs. Management expects the pricing impact from NAND demand-supply balance to pressure gross margin percentages near term. We estimate bottoms at 35% Despite near term number cuts, the stock remains inexpensive, trading at 7x est. trough EPS.
Shareholders are paid a 2.86% dividend. Merrill Lynch has lowered its price target to $110 from $120. The consensus target across Wall Street is $118, and shares closed trading on Monday at $70.03.
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These five very solid contrarian stock plays include two tech ideas. Now it is very possible the time horizon on these stocks may have been pushed out some due to prevailing issues, but it’s a good bet that price bottoms have been put in, and that bodes well for patient accounts.
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