Technology

4 Top Tech Stocks That Beat Earnings May Be Strong Buys Now

Lee Jackson

Published: August 9, 2016 8:35 am

Last Updated: January 13, 2020 4:48 am

In a market that is getting pricey, earnings will be the only thing going forward that will allow companies to trade higher, as positive and higher earnings will also allow multiples to rise. While stocks are still probably the best place to be invested, and the U.S. market probably the best market, any failure by companies when it comes to earnings could be met with a severe reaction.

A new RBC research note makes the case that earnings for this year so far are relatively stronger than some anticipated, and it notes that companies that did come in with positive earnings surprises were treated well by investors. RBC also points out that companies that missed got spanked to the tune of 10% and more. They highlighted four top companies that beat earnings. These may be outstanding buys now, with good data as a tailwind.

Arris International

This stock has been a Wall Street favorite for years and is a top pick this week. Arris International PLC (NASDAQ: ARRS) provides media entertainment and data communications solutions in the United States and internationally. It operates through two segments. The Customer Premises Equipment segment offers various product solutions, including set-top boxes, gateways, digital subscriber lines and cable modems, and embedded multimedia terminal adapters and voice/data modems that enable service providers to offer voice, video and high-speed data services to residential and business subscribers.

The Network & Cloud segment provides cable modem termination system, converged cable access platform, multichannel video programming distributors, programmer equipment, ad insertion technologies and equipment in the ground or on transmission poles, as well as equipment used to initiate the distribution of content-carrying signals.

While some of the Wall Street concern over the set-top box arena is valid, many now feel that it will be years before demand slows. Trading at a low eight times estimated 2017 earnings, the stock is cheap at current levels. The company reported $1.73 billion in top-line sales for the second quarter, a 37% year-over-year leap resting on the acquisition of industry peer Pace, which closed earlier this year.

The Wall Street consensus price target for the stock is $35.43. Shares closed most recently at $27.20.

Amphenol

Not only is this company the top pick in the sector and has remained a favorite at RBC for some time, but it also is a top momentum pick. Amphenol Corp. (NYSE: APH) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.

Amphenol designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa and sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The company has a diversified presence as a leader in high-growth areas of the interconnect market, including: automotive, broadband communications, commercial aerospace, industrial, information technology and data communications, military, mobile devices and mobile networks.

RBC notes that the company’s IT/ Data Communication division is 19% of total revenue, and the company does 4% or so of its total business with Cisco.

Shareholders are paid a 0.93% dividend. The consensus price target is at $63.36, and shares closed Monday at $59.90.
Texas Instruments

This old-school chip tech company is also a sizable auto chip player. Texas Instruments Inc. (NASDAQ: TXN) is a global semiconductor design and manufacturing company that develops analog integrated circuits and embedded processors. The company generates 80% to 90% of its revenues from its analog and embedded processing businesses, which have well-diversified end-markets (autos, industrial, personal/consumer electronics), long product life cycles and limited capital intensity. The company has 6% market share of the auto chip market.

Numerous Wall Street pros see the stock as core large cap holding, and they cite a solid high-single-digit and very diverse revenue flow, solid capital allocation to lever the balance sheet if needed, and substantial room for margin expansion as the ramp up new facilities. The company boasts sustained impressive cash flow over the past several years and has impressively returned 100% plus of that back to shareholders via stock buybacks and dividends.

Given modest capital expenditure requirements coupled with room for margin expansion, Texas Instruments should be able to sustain double-digit free cash flow growth despite slower sales growth.

Texas Instruments also posted strong second-quarter numbers that exceeded consensus estimates, and its third-quarter guidance is in line with what analysts expect.

Texas Instrument investors receive a 2.17% dividend. The consensus price objective is $71.04. The shares closed Monday just below that at $70.14.

Qualcomm

This is a top technology stock that has performed very well this summer. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies. The company includes the licensing business, QTL, and the vast majority of its patent portfolio. Its subsidiary Qualcomm Technologies operates substantially all of Qualcomm’s engineering, research and development functions, as well as substantially all of its products and services businesses, including its semiconductor business, QCT.

The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA (Code Division Multiple Access) technologies. The company recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide the company with a huge leg up in years to come.

Qualcomm reported third-quarter revenue and earnings that beat Wall Street estimates. Fourth-quarter guidance was also better than expected. In China, new semiconductor products are gaining share and management is making better progress with royalty collections.

Investors are paid a 3.45% dividend. The consensus price objective is $61.85, and shares closed Monday just south of that level at $61.58.

These four companies blew past earnings expectations and also gave solid guidance. Investors should consider buying partial positions now and looking for a pullback to buy more shares.