Analyst Picks Stocks to Buy for a Projected IT Spending Recovery

By Lee Jackson Published Jul 11, 10:30AM EDT

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Despite the recent turbulence in the market, some very good data is starting to emerge that could give tech stocks a nice second-half tailwind. A Cowen survey that targeted 100 U.S. based enterprise clients points to solid demand trends in banking, financial services and insurance, as well as manufacturing verticals, with an expected spending recovery in retail. Results also point to large contract renewal activity in 2014 impacting a host of the top technology vendors.

With renewed spending and contract renewals coming up, the new research report from the Cowen team has a list of top stocks to buy that look to benefit from this increased spending in the second half of 2014. Here are the stocks rated Outperform.

Computer Sciences Corp. (NYSE: CSC) has posted decent results, and yet the stock still has a hard time gaining much traction, despite moving higher. The company has shifted its focus from infrastructure sales to more profitable software and services. Last year it purchased big-data rival Infochimps in an effort to expand its platform and revenues.

While in longer term CSC faces structural competitive challenges, near term the company has a solid book of business, and management is taken steps, such as offshoring, to reduce operating expenses. Investors are paid a 1.4% dividend. The Cowen price target for the stock is $75. The Thomson/First Call consensus price objective is $64.83. Shares closed Thursday at $62.71 a share.

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Cognizant Technology Solutions Corp. (NASDAQ: CTSH) provides information technology (IT), consulting and business process outsourcing services worldwide, such as IT strategy, program management, operations improvement, strategy and business consulting services. The company operates through four segments: Financial Services; Healthcare; Manufacturing, Retail and Logistics; and Other. The Cowen price target is $55, and the consensus target is $56.20. Shares ended Thursday at $50.01.

EPAM Systems Inc. (NYSE: EPAM) primarily provides software product development services worldwide. The company offers product research, design and prototyping, product development, component design and integration, full lifecycle software testing, product deployment and end-user customization, performance tuning, product support and maintenance, and porting and cross-platform migration.

UBS likes the mini-theme of Eastern European services companies, and EPAM fits the bill perfectly and could be a takeout candidate. The Cowen price target is $45, and the consensus target is $43.13. The stock closed Thursday at $39.17.

Infosys Ltd. (NYSE: INFY) is a global leader in consulting, technology and outsourcing solutions. It enables clients in more than 30 countries to stay a step ahead of emerging business trends and outperform the competition. It also helps clients transform their businesses and opportunities and thrive in a changing world by co-creating breakthrough solutions that combine strategic insights and execution excellence.

UBS says Infosys shares have been dramatically sold off in the past two weeks. Shareholders are paid a 2.5% dividend. Cowen has a $65 price target, and the consensus target is posted at $58.08. Infosys closed Thursday at $55.60.

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Luxoft Holding Inc. (NYSE: LXFT), like other IT services stocks, typically displays multiple expansion when macro outlook is stable or improving, and that outlook may drive the stock in the second half of 2014. The company provides software development services and IT solutions to multinational corporations, primarily in Western Europe and North America.

Luxoft offers software development services, including custom software development and support comprising application software development, software architecture design, performance engineering, optimization and testing. The Cowen price objective is $40, and the consensus target is $42.81. The stock closed Thursday at $36.76.

Virtusa Corp. (NASDAQ: VRTU) provides end-to-end IT services to Global 2000 companies. These services, which include IT consulting, application maintenance, development, systems integration and managed services leverage a unique platforming methodology that transforms client’’ businesses through IT rationalization. Virtusa helps customers accelerate business outcomes by consolidating, rationalizing and modernizing their core customer-facing processes into one or more core systems.

The Cowen target for this fast growing stock is set at $40, and the consensus price target for Virtusa is slightly higher at $40.80. Shares closed Thursday at $34.19.

All of these top stocks are IT-focused companies. With an expected increase in budgets, they should all see revenue growth that could affect the top and bottom lines in the second half of 2014.

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About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.