In a new research report, J.P. Morgan posted a list of the best ideas to come out of this year’s TMT conference. We screened the list for some of the top ideas by market cap and current Wall Street overall interest.
Broadcom Corp. (NASDAQ: BRCM) was a top trade name this year at the conference. Broadcom disappointed with its first-quarter earnings results as the company struggled in its mobile and wireless business. The company’s profit dropped on a year-over-year basis, and despite an earnings beat, the stock got hit. Given the stiff competition from other industry giants, some think that the company could look for a buyer or become a merger candidate. The company sells a variety of products to Cisco: switch PHYs and ASICs, million instructions per second processors, cable modem infrastructure. Broadcom also sells cable modem and MPEG encoder (DVR) chips to Scientific Atlanta. Investors are paid a 1.6% dividend. J.P. Morgan rates the stock Overweight, with a $39 target. The Thomson/First Call price target is $32.49. The stock closed Tuesday at $30.95 a share.
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Cavium Inc. (NASDAQ: CAVM) generates close to 18% of its revenue from its association with Cisco, with security and multicore embedded processors. With company-specific product ramps within Cisco, including 70-plus existing design wins, the company expects to double sales to Cisco over the next several years. Given the uptick in Cisco’s business, and very positive market coverage of the networking giant, this could be a huge tech supplier play. Cavium is rated Overweight at J.P. Morgan, with a $50 price target. The consensus price target for this top name is $47. The stock closed Tuesday at $49.38.
Netflix Inc. (NASDAQ: NFLX) continues to be a top media play on Wall Street, and the company recently announced yet another expansion of its programming and reach, this time farther across Europe. Netflix also recently struck a deal for animated films from Sony Pictures, including “Cloudy with a Chance of Meatballs 2” and “The Smurfs 2.” The short interest in the stock increased almost 35% from mid-April to May — the short-sellers better be careful. With the market breaking out, and no topside resistance, they could get buried in a big run. Rated Overweight at J.P. Morgan, the firm has a huge $500 price target on the stock, while the consensus is at $410.06. Netflix closed Tuesday at $398.81.
Pandora Media Inc. (NYSE: P) is a top trade from the conference and is rated Overweight at J.P. Morgan. It is clearly not the only one with a big desire to be in the music streaming business. The stock has been knocked well off its March highs and has just started to rebound, allowing a solid entry point for interested investors. The company did have good news during earnings when it announced that content acquisition costs grew more slowly than revenue. Advertising revenue grew by 45% year-over-year, with total revenue jumping by 69%, thanks to a near-tripling of subscription revenue, compared to just 26% growth in content acquisition costs. The J.P. Morgan price target is $41, and the consensus target is $34.44. Pandora closed Tuesday at $25.63.
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Verizon Communications Inc. (NYSE: VZ) is a top telecom name to emerge from the TMT conference, and it is also rated Overweight. The stock is becoming the new darling of Warren Buffett and many of the top hedge funds. Berkshire Hathaway recently disclosed a $528 million purchase of the stock. He was followed by hedge fund managers Kyle Bass and John Paulson, who also bought the stock. The shareholders are paid an outstanding 4.3% dividend. The J.P. Morgan price target is $55, and the consensus target is $53.85. Verizon closed Tuesday at $49.62
Western Digital Corp. (NYSE: WDC) also makes the J.P. Morgan list of top trade ideas. Western Digital is a global provider of products and services that help consumers to create, manage, experience and preserve digital content. Its subsidiaries design and manufacture storage devices, networking equipment and home entertainment products under the WD, HGST and G-Technology brands. The company’s market share in the total addressable hard disk drive (HDD) market increased to 45.1% in the first quarter. Investors are paid a 1.9% dividend. Rated Overweight at J.P. Morgan, with a $105 price target, it has a consensus target of $99.91. The stock closed trading Tuesday at $87.42.
Clearly the names coming out of the J.P. Morgan conference are market leaders and poised for a strong 2014 and beyond. The wildcard for investors now is where the market is going after making all-time highs on many indexes. Conventional wisdom seems to be calling for volatility to creep in and perhaps a summer sell-off. Investors may be wise to scale in capital to these top ideas and wait for a pullback to add the balance.
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