With the Memorial Day holiday having kicked off the traditional start of the summer vacation season, many investors are probably unsure of how trading will go this year. Typically, the summer brings lower volumes as both investors and traders hit the road for destinations far and wide. With the COVID-19 pandemic orders still in place in many cities and states, this year could be a different story.
The analysts at SunTrust were given the task to select 48 top stock ideas that are best positioned to generate alpha over the next year. All the stock selections had to have a market cap of at least $500 million, and of course all have a Buy rating at the firm.
These five top selections in the technology and services arena that look like stellar summer ideas, and some could be very solid plays should the pandemic restrictions remain in place longer than expected. Remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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CrowdStrike
The cybersecurity giant’s stock has been cut in half and offers some tremendous value. CrowdStrike Holdings Inc. (NASDAQ: CRWD | CRWD Price Prediction) is a leader in the endpoint protection platform (EPP) market. EPP solutions help protect enterprises’ internet-connected devices from cyberattacks, and there is a market shift from signature-based on-premises solutions to cloud-based platforms that use machine learning.
CrowdStrike’s platform is one of the few 100% cloud-based architectures and is uniquely positioned to displace incumbents with its platform breadth, including advanced detection and remediation capabilities.
SunTrust remains very positive on the company and said this:
We believe that CrowdStrike has emerged as a key beneficiary of the remote working paradigm that has accelerated during the COVID-19 Crisis. Our conversations with customers over the last few weeks lead us to believe that they are benefiting from both new customer growth and upsell within their existing customer base. Our analysis leads us to believe that current ARR expectations are overly conservative and that the Company has a long runway in a favorable competitive environment.
SunTrust recently raised the price target from $80 to $95. The Wall Street consensus target is $73.32. The last trade Tuesday for CrowdStrike stock was reported down 3.5% at $79.35 a share.
Electronic Arts
This is a leading video game developer that should benefit from not only the continuing rise in new console sales, but the rising trend of mobile gaming. Electronic Arts Inc. (NASDAQ: EA) produces top-selling games and related content and services under the EA brand in various categories, including action-adventure, role-playing, racing and first-person shooter games.
The company is realizing a greater percentage of revenues from digital platforms, which may enhance margins and lead to more sustainable revenue growth. Key franchises for the company include Madden, FIFA, Need for Speed, Battlefield, Star Wars Battlefront, Mass Effect, Dragon’s Age and The Sims.
SunTrust, positive on the future, noted this:
We believe Electronic Arts growth will accelerate in 2022 driven by Battlefield, with potential upside from any other meaningful releases. The company has a strong balance sheet (>$16/share net cash). We expect a new buyback authorization in fiscal 2021 with optionality around a dividend. BUY rating on favorable group fundamentals.
SunTrust has a $131 price target, while the consensus target is just $120. Electronic Arts stock closed on Tuesday at $116.64.
GoDaddy
This company is probably the most well known for constructing websites. GoDaddy Inc. (NYSE: GDDY) is a technology provider to small businesses, web design professionals and individuals. It delivers cloud-based products and personalized customer care. The company operates a domain marketplace, where its customers can find the digital real estate that matches their idea. It provides website building, hosting and security tools to help customers construct and protect their online presence.
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GoDaddy provides applications that enable connecting to customers and managing businesses. It also provides search, discovery and recommendation tools, as well as a selection of domain name for ventures. It provides productivity tools, such as domain-specific email, online storage, invoicing, bookkeeping and payment solutions to run ventures, as well as marketing products.
The company proved again that it can deliver consistent execution in any weather as first-quarter results were strong. Analysts feel that the company can be a low teens revenue grower, with steady free cash flow margin improvement, plus a $500 million reloaded share buyback program after $1 billion purchased over the past year. GoDaddy has new product offerings, including a new freemium option.
The SunTrust price target is $88, and the consensus target is $79.62. GoDaddy stock was last seen trading at $75.24.
Microchip Technology
Shares of this huge Internet of Things benefactor and have been very strong recently. Microchip Technology Inc. (NASDAQ: MCHP) is a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.
The company acquired Microsemi in June of 2018, and SunTrust believes that purchase and earlier acquisitions afford Microchip Technology ongoing mergers and acquisitions linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).
Investors receive a 1.67% dividend. The $94 SunTrust price target is lower than the $102.42 consensus price objective. Microchip Technology stock closed Tuesday at $93.85, up almost 7% on the day.
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Peloton Interactive
This cycling and exercise platform had a 2019 initial public offering that initially performed poorly but has taken off. Peloton Interactive Inc. (NASDAQ: PTON) is the largest global interactive fitness platform, with a community of over 1.4 million members.
The company offers workout bikes and treadmills that include a touchscreen that streams live and on-demand classes for indoor cycling, running, walking, boot camp, yoga, strength training and meditation. The company serves customers in the United States, Canada, United Kingdom and Germany.
Recent reports suggest that Peloton could introduce a lower-priced treadmill and a rowing machine this year. Data suggests the tread market could be larger than the bike, so a tread priced similar to the bike should see better adoption. With a focus on at-home fitness even greater with the stay-at-home and lockdown edicts in place around the country, the company has plenty of upside.
The company posted strong earnings for the first quarter, with an outlook for revenue, earnings, subscriptions and churn that was much higher than Wall Street expectations. Analysts continue to anticipate an ongoing benefit from long-term consumer behavior change.
SunTrust has set its price target at $60. The consensus target is $38.48, and Peloton stock dropped almost 9% on Tuesday to close at $41.70.
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These five top picks from the analysts at SunTrust hold solid potential not only for the summer, but for the months to follow. Given the strong run in the markets recently, it may make sense to buy partial positions here and see if we don’t get a pullback at some point in June. That said, some of these stocks suffered in what was a strong day Tuesday, so they are possibly already moving back to solid levels at which to buy.
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