3 Old-School Dividend Tech Stocks Could Outperform in Volatile 2016

By Lee Jackson Updated Jan 13, 3:09PM EST · Published Jan 12, 9:45AM EST

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.

3 Old-School Dividend Tech Stocks Could Outperform in Volatile 2016 — © Thinkstock

With 2016 off to the worst start ever, many technology investors are very concerned over the possible direction for the rest of 2016. While concerns over a production slowdown at Apple may be overblown, the bottom line is the Nasdaq is already down almost 8%, and things could get worse before they get better.

One smart move for investors looking to stay long the technology sector could be to rotate capital to some of the old-school mega cap technology companies. While they may not have the pizzazz of some of the Internet of Things darlings, they do have staying ability. That makes good sense in a rocky market.

We screened the Merrill Lynch research database, and found three stocks that just might be the ticket for investors who have been jolted by the horrible start to the 2016 trading year. All are rated Buy at Merrill Lynch.

Cisco

This is one of the top mega-cap technology stock picks on Wall Street and perhaps a surprising defensive pick for volatile markets like we have witnessed. Cisco Systems Inc. (NASDAQ: CSCO) posted disappointing earnings in November, and many on Wall Street have lowered their price targets for the networking giant significantly. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.

Cisco won an important contract last year 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.
[recirclink id=308196]
Analysts across Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Many think that Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate. 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. Merrill Lynch thinks risk/reward is very positive for investors at current levels.

Cisco investors receive a solid 3.35% dividend. The Merrill Lynch price target for the stock is $30, and the Thomson/First Call consensus target is $31.02. The shares closed most recently at $25.27.

Intel

This top chip stock traded sideways all last year and actually closed down from where it started 2015, but with $21 billion of cash on the books, the dividend looks very safe. Intel Corp. (NASDAQ: INTC) is one of the companies that is regarded as having among the highest shareholders cash returns at approximately 8%, but has lagged high growth specialty chip stocks.

Intel purchased chip rival Altera last year for a massive $16.8 billion, and the deal finally closed on December 28. Some on Wall Street viewed the deal pessimistically, citing its high cost, aggressive growth assumptions on the part of Intel and the increase in debt. Others feel the addition will help Intel start to move away from the PC dependence. Intel’s acquisition of the company puts it into the traditional fabless market of programmable logic devices. By 2020, 50% of Altera’s product line could be manufactured at Intel facilities.

Intel’s NAND flash memory business has a strong focus on enterprise opportunities. Many on Wall Street think that the company’s new chip, which is a collaboration with Micron Technology called the 3D XPoint, could be primarily In-Memory compute in servers, and its launch should coincide with Intel’s Purley platform server launch in 2016.

Intel investors receive a 3% dividend. Merrill Lynch recently raised its price target to $40. The consensus target is $36.22, and shares closed Monday at $32.06.

Microsoft

This is another top technology stock that gives investors a degree of mega-cap tech safety, and it has a massive $99 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers who have been adding the software giant to their holdings at an increasingly faster pace all of this year.

Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, but they maintain that Microsoft is discounting Azure for large enterprises such that Azure may be cheaper than AWS for larger users.

Top analysts believe the company continues to make steady progress with its cloud transition and expect Office 365 and Azure to be solid contributors to top and bottom lines for the next several years. While not likely to snag the top slot from Amazon, it could add huge incremental revenue for years to come.

With gaming revenues growing at a huge pace, the Xbox continues to gain ever more fans as the ultimate console to own. The company continues to upgrade the popular device, and many think that it could dominate Sony’s PlayStation down the road.

Microsoft investors receive a solid 2.75% dividend, and the forward valuation remains compelling. The Merrill Lynch price target is $63. The consensus target is $57.66 Shares closed Monday at $52.30.
[recirclink id=307970]
These old-school leaders have one thing in common: survival and longevity. With the market still very weak, and appearing vulnerable now, they make good sense for investors with an aggressive growth portfolio who see better things down the 2016 road.

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.