Technology

Oppenheimer Very Bullish on 3 Red-Hot Technology Stocks

Lee Jackson

Published: September 1, 2016 11:05 am

Last Updated: January 13, 2020 4:01 am

Typically the best time to buy technology stocks is either right before earnings when you think the company has a chance to beat the Wall Street estimates, or after a so-so quarter in which a company perhaps just hits the numbers or slightly misses guidance estimates. Top performing technology stocks often can have an uneven quarter, and that scares momentum investors but gives long-term investors a great opportunity.

A series of new research reports from Oppenheimer focus on three quality tech stocks. One they expect to beat numbers and raise estimates, another they feel Wall Street doesn’t appreciate the potential, and a third came in in-line with estimates but was hit hard by sellers. All are rated Outperform and make good buys for aggressive growth accounts.

Broadcom

This combined entity 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. Its 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 the company has between a 13% and 17% revenue exposure to Apple in the wireless communications segment, which was guided up 10% or more 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. Oppenheimer believes the company will beat estimates and raise guidance when it reports. The report said:

We see Broadcom’s storage segment rebounding seasonally in the fiscal fourth quarter supported by stable end markets in Wired. With Broadcom one of the group’s best self-help stories, we see multiple levers at mgmt’s disposal to fuel earnings-per-share and free-cash-flow growth and upside. Longer term, we like Broadcom for its dominant/diversified semiconductor portfolio and significant free-cash-flow potential.

Broadcom investors are paid a 1.13% dividend. Oppenheimer raised its price target for the stock to $190 from $180. The Wall Street consensus price target is $195.22. Shares traded Thursday at $175.41.

Palo Alto Networks

This company was a momentum trader’s dream before crashing back to earth. 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 staggering year-over-year billing growth.

Unlike fragmented legacy products, the Palo Alto Networks security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content. The platform has new features that were introduced to 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 company 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 who carry and sell the product. Toss in solid upside in billing potential for 2016 and 2017, and the story is a killer going forward. Many analysts on Wall Street have made it clear that the feedback they get from the professionals at security conferences is the most bullish on Palo Alto, and the company is gaining real traction with larger data centers’ firewalls.

The company reported inline results this week, but it missed other key metrics due to increased sales and marketing expenses, which brought the sellers out in full force. Oppenheimer feels that this is an outstanding buying level, as the stock gapped down almost 10%.

Oppenheimer has a big $177 price target for the stock, and the consensus target is $181.25. The stock traded Thursday at $137.66.

Pure Storage

This 2015 IPO looks to be offering investors a big upside in flash storage. Pure Storage Inc. (NYSE: PSTG) offers customers disruptive, software-driven storage technology combined with a customer-friendly business model that drives business and IT transformation for customers through dramatic increases in performance and efficiency at lower costs.

Pure Storage FlashArray//m is simpler, faster and more elegant than any other technology in the data center. FlashArray //m is ideal for the move toward big data and for performance-intensive workloads, such as cloud computing, database systems, desktop virtualization, real-time analytics and server virtualization.

The stock price hit bottom in June, falling almost 50% from highs hit after the initial public offering, and the Oppenheimer analysts feel that the potential the company has is nowhere near what Wall Street expectations are now. They said this in the report:

Since our initiation (2/3/16 at $12.43) we’ve been positive on Pure’s all-flash technology/positioning, execution, and growth potential within a large enterprise/cloud storage total addressable market. Valuation was the primary reason behind our Perform rating, but at current levels we believe too much negativism is built-in. Our thesis is largely unchanged. We’re bullish on Pure’s progress toward CF breakeven and profitability, and its ability to capitalize on differentiated technology, AFA growth, and on expansion opportunities with new products (especially FlashBlade), new customers, and internationally.

Oppenheimer lifted the rating on the stock to Outperform and has a $15 price target. The consensus target is even higher at $16.60. The shares traded at $11.66 on Thursday.

These are three top plays for aggressive accounts, with two presenting very enticing entry points. While not suitable for more conservative accounts, these companies should continue to remain leaders in their respective technology arenas.