Most aggressive investors like to keep a nice slug of the top technology stocks in their portfolios, but 2015 was a rough year for many of the solid companies in the sector, and 2016 could be the year that many bounce back. Most of the top firms on Wall Street we cover remain positive on technology, especially the software arena, and a new report from RBC highlight the software stocks the firm likes for next year.
RBC remains focused on what it refers to as next-generation companies that have the ability to grow margins, and what they also term as the “software disruptors.” The analysts are very bullish on seven top companies they dub the SPAWNS, and we highlight the four large cap companies that may have the largest upside potential in 2016. All are rated Outperform at RBC.
Adobe Systems
This is a high-profile, old-school software company that makes sense for growth accounts. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content.
The Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured and optimized. This segment provides analytics, social marketing, targeting, media optimization, digital experience management and cross-channel campaign management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers and chief revenue officers.
The Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development and high-end printing, as well as publishing needs of technical and business and original equipment manufacturers printing businesses.
Adobe is also reasonably safe route for investors looking to own a company with marketing automation product, which has become huge.
The RBC price target for the stock is $112, and the Thomson/First Call consensus price target is $103.05. Shares closed on Friday at $91.31.
Palo Alto Networks
This has been a momentum trader’s dream over the past two years, and it may have more investors looking its way after the FireEye implosion. Palo Alto Networks Inc. (NASDAQ: PANW) is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber threats, and it boasted a staggering year-over-year billing growth. Unlike fragmented legacy products, its security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content.
Palo Alto Networks security platform has new features that help security professionals overcome the distractions and time spent on problems caused by the overwhelming volume of alerts and manual processes associated with operating many discrete security products, and instead expand breach prevention capabilities and boost operational efficiency.
The best thing for investors is the past quarter numbers were against already tough comparisons, and with the demand for security continuing almost unabated, the company could be poised for years of incredible growth. It continues to be ranked the highest with the Wildfire product, which has been the favorite in the advanced persistent threat space among the value-added resellers that carry and sell the product. Toss in 20% upside in billing for the quarter, and the story is a killer going forward.
Other analysts on Wall Street have made it clear that the feedback they got from the professionals at security conferences was the most bullish on Palo Alto, and the company is gaining real traction with larger data centers firewalls.
RBC has a $205 price target, while the consensus target is set at $209. The stock closed trading Friday at $182.89.
Salesforce
This company posted outstanding earnings this year and is one of RBC’s favorite large cap growth ideas. Salesforce.com Inc. (NYSE: CRM) also has been a momentum stock trader’s dream over the past few years.
Many on Wall Street feel that while the stock trades mostly in line with its fast organic software-as-a-service (SaaS) peer group, which many see as having the largest growth rate in 2015, the company should trade at a premium to the group. The company posted year-over-year billings growth way above estimates and has seen operating margins expand by 1.7%. Its growing portfolio of Enterprise-class solutions have not only enhanced the brand, but helped to achieve access into bigger companies.
Wall Street analysts see substantial billings growth, and many already have raised their fiscal 2016 estimates on both revenues and earnings. Importantly, the company’s new analytics products are factored into many 2016 estimates and could provide upside. The company is expected to report third-quarter earnings next week.
Salesforce’s Platform business now generates $1 billion of annual subscription and support revenues, equal to about 16% of Salesforce’s total revenue mix. The Platform segment includes Force.com (enterprise-grade, hosted in Salesforce’s data centers) and Heroku (hosted on AWS, more of an elastic cloud, supports most new programming languages).
While many think that the company’s growth guidance could be conservative, Salesforce is constantly apart of Wall Street takeover chatter, and that tends to keep short sellers at a distance. RBC sees the valuation as reasonable and feels the growth potential remains outstanding.
The RBC price target is $90. The consensus target is $89.91. Shares closed Friday at $77.03.
ServiceNow
This could be among the fastest growing of the RBC Outperform-rated stocks and is the top pick for 2016. ServiceNow Inc. (NYSE: NOW) expects to have 50% of the Global 2000 customers by 2020, adding 15 to 20 each quarter. ServiceNow is the enterprise IT cloud company with a service used to create a single system of record for IT and automate manual tasks, standardize processes and consolidate legacy systems. Using the company’s extensible platform, customers can create custom applications and evolve the IT service model to service domains inside and outside the enterprise.
Customers use the firm’s service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow enables service management for every department in the enterprise including IT, human resources, facilities, field service and more.
The $90 RBC price target compares to a consensus posted at $89.88. The shares closed Friday at $85.73.
Needless to say, these stocks are for accounts that are very aggressive in nature. However, their large cap status and incredible growth potential makes them all exceptional picks for 2016.
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