[cnxvideo id=”506831″ placement=”ros”]In the technology sector, one thing is for sure: what’s hot one day can turn very cold the next, and once the market is no longer in love, the ability for the comeback becomes harder. One of the best examples is Apple Inc. (NASDAQ: AAPL), which 10 years ago was trading in the $10 range. But then came the iPod and then the iPhone, and the rest is history.
While not all tech stocks can do the stock price swan dive and return stronger than before, it happens, and it does on a pretty regular basis. This quarter three top stocks that have done a round trip are all out with outstanding earnings and look to be going much higher. Despite the fact they have made stunning turnarounds, some Wall Street firms have them rated at Sell.
Jefferies loves all three of these stocks and has them rated Buy.
Texas Instruments
This old-school chip tech company was really more out of favor, but has come back solid. 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.
Texas Instruments posted strong third-quarter numbers and also increased its quarterly dividend by 32% to $0.50 per share, or $2.00 annualized. The increase reflects the company’s continued strength in free cash flow generation and its commitment to return excess cash to shareholders. The quarterly dividend declared will be payable on November 21, 2016, to shareholders of record on November 7, 2016.
Texas Instrument investors are paid a solid 2.82% dividend, with the new increase. The Jefferies price target for the stock is $83, while the Wall Street consensus price objective is lower at $72.21. The shares closed Thursday a little below that at $70.73.
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VMware
Although still down from highs printed in the summer of 2015, the stock has rallied nicely off lows printed back in February. VMware Inc. (NYSE: VMW) provides virtualization infrastructure solutions in the United States and internationally.
The company’s virtualization infrastructure solutions include a suite of products designed to deliver a software-defined data center run on industry-standard desktop computers and servers, and support a range of operating system and application environments, as well as networking and storage infrastructures. Its solutions enable organizations to aggregate multiple servers, storage infrastructure and networks together into shared pools of capacity.
The Jefferies team cites the company’s strong balance sheet, with $8.7 billion in cash and short-term securities and a previously announced $1.2 billion stock buyback program that goes through the end of the year. They also point to the synergies in the deal with Dell, where it acquires EMC, which owns a huge 81% position of VMware stock.
VMware reported strong growth on the top and bottom lines, including licensing revenue that rose 1%, all of which beat Wall Street estimates. In addition the company raised guidance for 2016, while noting that license billings grew by a double-digit percentage on a constant currency basis for the first time since 2014.
The Jefferies price target is a whopping $91, and the consensus target is posted at $75.55. The shares closed Thursday at $75.77, up 3.4% on the day.
Western Digital
This long-time innovator in the storage industry is a leader in the total addressable hard disk drive (HDD) market, and it posted very positive earnings earlier this week. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.
Western Digital is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.
The most compelling news is that the company made a stunning $19 billion purchase of SanDisk last year. This could be a strong addition to Western Digital’s current offerings, and the company could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.
Western Digital is yet another rebounding company that has returned with a vengeance. Jefferies noted in its report:
Western Digital reported Fiscal first quarter revenue and earnings-per-share results that were better than the positive pre-announcement driven mostly by higher volumes in both HDDs and NAND but also improved pricing (particularly in NAND). Calendar fourth quarter guidance was also well above Street. We expect the company to continue to benefit from strong HDD and NAND fundamentals in the near to medium term.
Western Digital shareholders are paid an attractive 3.36% dividend. Jefferies has a $75 price target for the stock, while the consensus price objective is set at $63.87. Its shares closed up a big 5.41% on Thursday at $59.58.
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Like the proverbial Phoenix, these companies have fought their way back to prominence, and they all delivered outstanding earnings. While suited for more aggressive accounts, they make sense for accounts looking to add alpha potential.
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