Deutsche Bank Picks 3 Top Networking Stocks to Buy Now

By Lee Jackson Updated Jul 8, 10:15AM EDT · Published Jul 8, 8:25AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

If there has been one positive trend over the past couple of years that has helped tech investors, it has been the steady increase in information technology (IT) spending. With dollars flowing towards 100 Gigabit Ethernet data center switching, next generation security, 100G optical and cloud services, the top companies are continuing to benefit.

In a new report, the analysts at Deutsche Bank focus on three top stocks to buy that may also provide investors with a more aggressive bent on a solid summer trade. All are rated Buy at the firm.

Arista Networks

This company went public last June and has continued to be one of the hot tech IPO stories of the past year. Arista Networks Inc. (NYSE: ANET) delivers software-driven cloud networking solutions for large data center and computing environments. In addition, the company’s 10/40/100 Gigabit Ethernet switches offer scalability and performance, and it has over 2,700 customers and more than 2 million cloud networking ports deployed worldwide. At the core of Arista’s platform is EOS, an advanced network operating system. Arista Networks products are available worldwide through distribution partners, systems integrators and resellers.

Many on Wall Street think that the company could benefit from dual supplier requirements at the Web 2.0 and cloud portals and think Arista could see upside to the lofty 30% compound annual growth rate (CAGR) currently forecast. The Deutsche Bank team sees little risk to second- or third-quarter expectations, and they see the company meaningfully benefiting from the 100 GE switching refresh cycle at major Web 2.0 and cloud portals, including Microsoft Azure and Bing Search.

The Deutsche Bank price target for the stock is $95. The Thomson/First Call consensus estimate is $91.33. Shares closed most recently at $79.85.

ALSO READ: UBS Makes Changes to Dividend Ruler Stock List
Cisco

This is the top mega-cap technology stock pick at Deutsche Bank. Cisco Systems Inc. (NASDAQ: CSCO) is trading at a low 12.4 estimated 2015 earnings and boasts an outstanding 7.44% free cash flow yield. The networking giant also seems to have fought through numerous headwinds, including up and down demand from telecom carriers, weakness in emerging markets and threats to its very lucrative switching business — all of which the analysts feel are going away. The company also stands to benefit from a better corporate spending environment in Europe, as well as continued growth here at home.

Cisco earlier this year won an important contract for the Verizon build out of the company’s next-generation 100G metro network. While Cisco’s optical business is small as a part of total revenue, this win is seen by Wall Street as a significant endorsement of the investments Cisco has made into its optics business.

The Deutsche Bank team points to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. They think that Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% CAGR. A jump from 40 GE to 100 GE data center switching and next generation security are also adding to the total sales profile and product mix.

Cisco investors are paid a very solid 3.09% dividend. The Deutsche Bank price target is $35, and the consensus target is $31.45. Shares closed Tuesday at $27.36.

ALSO READ: 4 Jefferies Top Value Stocks to Buy Now

F5 Networks

This company provides solutions for an application world. F5 Networks Inc. (NASDAQ: FFIV) helps organizations seamlessly scale cloud, data center, telecommunications and software defined networking deployments to successfully deliver applications and services to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time.

F5 Networks Application Delivery Controller platform offers unparalleled flexibility and performance, while being a “very sticky” platform, with high programmability that leverages a proprietary environment. The company also continues to enrich its platform with new features on a regular basis. With the company’s growth driven by data centers, earnings should continue to be strong.

The Deutsche Bank team sees the recent pullback in the stock, which came after some competitor downgrades, offering investors an excellent entry point. They see the stock as cheaper than its peers, and the company’s service provider business is seeing strength in Mobile Network Firewall refresh and in Software Layer 4-7 modules at the major telecom companies like Verizon.

The Deutsche Bank price target for this top stock is $135, and the consensus target is $131.13. The stock closed Tuesday at $118.32.

ALSO READ: Meet the Newest ETF in Cybersecurity

Despite the current rough seas in the markets, IT spending is expected to stay strong. The multiple avenues through which these companies sell product also helps to drive strong earnings growth. While these stocks are more suitable for aggressive growth accounts, they should also continue to be good long-term holds.

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.