Technology

2 Former Struggling Tech Stocks That Look Like Red-Hot Buys Now

Lee Jackson

Published: June 7, 2016 9:25 am

Last Updated: January 13, 2020 7:07 am

One thing is for sure in the fast-changing world of technology: the lead dog can be put at the back of the pack in no time at all. With constantly evolving industry standards, and new technologies quickly replacing older ones, the rate of change in the sector is among the fastest of all the S&P 500 sectors. Counting out older, established players can sometimes prove to be short-sighted, as they can return to prominence with breathtaking speed.

New research notes from Merrill Lynch focus on two stocks that are the epitomes of getting back in the game. While one is considerably newer than the other, both have spent some time in the Wall Street doghouse but look to be breaking out with a vengeance. In addition, both of the stocks are rated Buy at Merrill Lynch.

Applied Materials

This semiconductor capital equipment leader has lagged the overall tech market over the past year, but its shares have bounced smartly off lows printed in February and back in December. Applied Materials Inc. (NASDAQ: AMAT) is actually now finally trading above all the moving averages, and for patient investors may be a high-quality pick now.

The company is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.

The company posted solid results recently that beat expectations and it raised guidance going forward. Merrill Lynch noted that the company’s core business improved from improving semiconductor capital equipment spending. The firm also cited an increase in organic light-emitting diode (OLED) adoption by companies like Apple as a positive.

Many on Wall Street think that films companies like Applied Materials will benefit from the new Intel and Micron Technology 3D XPoint (which is pronounced 3D cross-point) technology, which is an entirely new class of nonvolatile memory that can help turn immense amounts of data into valuable information in real time.

Applied Materials investors are paid a 1.65% dividend. The Merrill Lynch price target for the stock is raised from $25 to $28. The Thomson/First Call consensus price target is at $26.02. Shares closed Friday at $24.17.

Arista Networks

This company went public in the summer of 2014 and has continued to be one of the hot tech stories. Arista Networks Inc. (NYSE: ANET) delivers software-driven cloud networking solutions for large data center and computing environments. In addition, its 10/40/100 gigabit Ethernet switches offer scalability and performance, and they have 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 they think Arista could see upside to the lofty 30% compound annual growth rates currently forecast. Some also see the stock benefiting as networking vendor that is leveraged to data center deployments.

The company has been embroiled in patent litigation with Cisco Systems, which to some degree has pressured the stock over the past six months. While well off the lows of February, the company still trades below the highs that were printed in the fall of 2014.

The Merrill Lynch price target is raised from $75 to $85. The consensus estimate is $80.45. Shares closed most recently at $74.66.

These two top tech firms are offering investors outstanding entry points. While not suited for all accounts, they make good additions to aggressive growth portfolios looking for fresh ideas.