Technology

RBC Sticks With 4 Top Technology Stocks for This Rally

Lee Jackson

Published: March 21, 2016 8:25 am

Last Updated: January 13, 2020 11:43 am

If one thing is clearly evident on Wall Street this year, it is some very divergent thought among the major firms we cover. Some are still very bearish and suggest selling every rally immediately. Others are far more positive and point to the solid economic news that continues to come out week after week. With the dollar’s strength abating, and the economy growing, one company we cover is very positive on the current market.

In a new report, Robert Sluymer and his outstanding team at RBC make the case that history tells us that declines in secular bull markets like we have seen twice in the past nine months are shallow, and the rebounds are often very powerful and sustained. They also point to the weaker dollar as a positive for stock especially cyclicals, some of which have a large percentage of sales outside the United States

The RBC analysts point to numerous sectors in their report, and the stocks that looked good. We found four technology companies that look outstanding now. They combine solid fundamentals with outstanding technical patterns.

Apple

This top technology stock has been battered as investors have worried that first-quarter iPhone sales could disappoint. Apple Inc. (NASDAQ: AAPL) evolutionized personal technology with the introduction of the Macintosh in 1984, and it leads the world in innovation with the iPhone, iPad, Mac, Apple Watch and Apple TV. Apple’s four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services, including the App Store, Apple Music, Apple Pay and iCloud.

The stock has been hit hard since posting all-time highs last summer. Many portfolio managers may have added the blue chip technology giant over the past six months as the stock dropped over 20% from the 2015 summer highs. A whopping 24 hedge funds own the stock now.

Top analysts note that many Apple suppliers did pre-announce negative earnings, and they think there is potential risk to the estimates for the March quarter. Most remain comfortable with estimates for 45 million iPhones sold, and while the March quarter chatter could remain an issue until numbers are out next month, the long-term story remains in place and should work well through the balance of 2016 and beyond.

Recent reports suggested that Taiwan Semiconductor Manufacturing will produce the next-generation system-on-chip design destined to power this year’s iPhone hardware refresh, beating out longtime Apple partner Samsung.

Apple investors receive a 1.96% dividend. The Thomson/First Call consensus price objective is $134.113. The shares closed Friday at $105.92.

This is the new name for the combined entity that was formerly known as Avago and Broadcom. Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Broadcom’s extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other. Applications for the company’s products in these end markets include: data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays.

The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Additional estimates are that Avago has between a 13% and 17% revenue exposure to Apple in the wireless communications segment, which was guided up 10% or so quarter over quarter for the third quarter. Customer diversity and content for Samsung could be more than enough to offset slower Apple business.

Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.

Broadcom investors receive a 1.3% dividend. The Thomson/First Call consensus price target is $178.36. Shares closed Friday at $152.49.
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 added the software giant to their holdings at an increasingly faster pace all of this year.

Numerous analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service and maintain that Microsoft is discounting Azure for large enterprises such that Azure may be cheaper than AWS for larger user. The 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 line 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 at some point down the road.

Microsoft investors receive a 2.7% dividend, and the forward valuation remains compelling. The consensus price target is $58.73. The stock closed Friday at $53.49.

Skyworks Solutions

This company has really rolled over from highs printed last summer, and it could be ready for a big move higher. Skyworks Solutions Inc. (NASDAQ: SWKS) designs, develops, manufactures and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, battery chargers, DC/DC converters, demodulators, diodes, directional couplers, diversity receive modules, filters, front-end modules, LED drivers, low-noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase shifters, phase locked loops, power dividers/combiners, synthesizers, technical ceramics, VCOS/synthesizers and voltage regulators.

The company posted a very solid fourth quarter with sales up 15% and earnings up a stunning 27% year over year. While the low demand for the iPhone 6s did trim the first-quarter outlook, the analysts are very positive on the stock as the iPhone 7 cycle begins. In fact, they expect the company to gain 10% to 15% higher content versus the last generation phone.

The consensus price objective is posted at $91.23. The stock closed Friday at $77.02 per share.