Technology

Jefferies Says Buy These Red-Hot Tech Giants for Continued Strong Growth

Lee Jackson

Published: October 31, 2016 9:50 am

Last Updated: January 13, 2020 1:43 am

With the third-quarter earnings season about to wind down, one thing is for sure. Despite the individual results of the quarter, the top tech stocks that dominate their specific arenas are most likely poised to continue that domination. In a technology world where size and scope often means the difference when confronting rivals and peers, it is clear that the big players will continue to hold and defend their turf.

In a series of new research reports, Jefferies continues to stay the course on the top technology stocks that the firm has rightly championed for some time. While not all the technology picks blew out third-quarter numbers, they all have a sizable advantage in their niche areas, and investors can continue to add shares. These four technology giants are also rated Buy at Jefferies.

Alphabet

The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) provides online advertising services in the United States, the United Kingdom and rest of the world. It offers performance and brand advertising services, and it operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.

The Google segment also sells hardware products, comprising Chromecast, Chromebooks and Nexus. The Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X and other initiatives.

The company reported earnings last week against some very tough comparisons from this time last year. Alphabet announced fiscal first quarter results that produced 20% year-on-year growth in revenues to $22.45 billion, in line with most expectations. On a constant-currency basis, revenues grew 23%. Google segment revenues for the quarter were up 20% over the prior year. While Google’s operating profit grew by 16.7%, the operating margin declined by just under 1% basis point.

The Jefferies analysts noted this in the report:

Paid clicks grew 33% year-over-year, beating consensus of 26% and it was the best paid click growth number in years. Mobile search was the #1 revenue driver for the fifth straight quarter We continue to believe online video is the biggest online ad growth driver and YouTube is the premier vehicle to play that trend.

The Jefferies price target for the stock is $1,000. The Wall Street consensus target is $ 965.29. Shares closed last Friday at $819.56.

Amazon

This company is the absolute leader in online retail and a dominant player in cloud storage business. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. In addition, the company serves developers and enterprises through Amazon Web Services (AWS), which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.

AWS is the undisputed leader in the cloud now, and many top analysts team see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market. The company has had numerous recent product announcements, including Aurora for relational database engine, Quick Sight for business intelligence and AWS Database Migration Support Service.

Amazon reported a mixed quarter last week, and Jefferies weighed in with this:

Revenues were in line and margins were soft. Guidance was below expectations as the company continues to invest, but the sales midpoint was also below expectations. We’d buy the dip as nothing here changes our view that Amazon is best positioned to benefit from the shift of commerce from offline to online. The ability to deliver fast is differentiated and drives growth in new categories.

Jefferies has a $950 price target. The consensus price objective is $920.02. Shares closed Friday at $775.88.

NVIDIA

This top chip company has reported strong earnings all year long, and the picture continues to grow brighter. NVIDIA Corp. (NASDAQ: NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.

NVIDIA is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has a technology partnership with electric car maker Tesla Motors. It has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

Top Wall Street analysts feel the stock is maturing to a platform company from a pure chip company, and Jefferies sees the stock continuing to benefit from four secular trends: VR, PC gaming, chips in the automobile industry and graphic processing units in the cloud.

The company recently reported incredible quarterly numbers, and forward guidance also came in to the upside. The Jefferies report noted:

Nintendo announced that it has selected Nividia’s Tegra processors to power its new home gaming system. We estimate this to be a $200-$300 million annual opportunity for the company’s near term. We assume something in the 13 million unit range and an average-selling-price of about $40. We see upside to 2017 sales and earnings-per-share estimates, with the EPS upside in the 11c to 16c range.

NVIDIA investors receive a 0.65% dividend. The $80 Jefferies price objective is well above the consensus target of $66.61. The stock closed Friday at $70.56.

Priceline

This internet travel leader took a huge leg down earlier this year before rebounding sharply. Priceline Group Inc. (NASDAQ: PCLN) operates Booking.com, which provides online accommodation reservation services, as well as Priceline.com, which offers hotel, rental car and airline ticket reservations services, as well as vacation packages and cruises through its Name Your Own Price and Express Deals travel services.

The company also operates Agoda.com, an online accommodation reservation service for consumers in the Asia-Pacific region, and RentalCars.com, which offers car rental reservation services.

Trading at a low 17 times fiscal year 2017 earnings estimates, the travel giant is seen by many Wall Street analysts as an “open-ended” growth story. Many on Wall Street continue to see comparisons easing for international bookings and margins will improve in the second half of the year and into 2017.

Priceline reported earnings earlier this month, and while revenue was in line with Wall Street estimates, earnings per share and EBITDA came in better. Bookings growth was solid driven by a 24% year-over-year gain in hotel room bookings. Jefferies is above consensus going forward and did note that while the recent terror attacks in Europe affected gross bookings and cancellations in respective markets, they did not have an impact on overall growth.

The Jefferies price target is set at $1,700. The consensus target is $1585.25, and the stock closed Friday at $1,474.82.

These four very hot growth companies are better suited for more aggressive growth accounts. All could bring stellar gains through the rest of 2016 and next year, as all have solid franchises and market share in their respective arenas of business.