Technology

Jefferies Mega-Cap Tech Stocks to Buy That Could Be Big 2017 Winners

Lee Jackson

Published: January 19, 2017 10:15 am

Last Updated: January 12, 2020 3:44 pm

With all eyes now focused on fourth-quarter earnings as this week and next week are the two big ones in terms of the quality and number of companies reporting, it’s important for investors looking to shuffle their portfolios for 2017 to add stocks that look to have favorable presentations. With Wall Street pundits trying to handicap what a Trump administration means for the economy, one thing is sure: Buy stocks poised to deliver the goods and that have a positive outlook for the rest of the year.

In a recent Jefferies research report includes top stocks to buy, and many of them will be reporting earnings for the fourth-quarter next week. We screened the companies for the stocks that appear to be positioned to do well, and found four tech leaders that could be great portfolio addition for more aggressive accounts. They are also big players in the Jefferies top internet themes for 2017.

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.

Analysts cite the company’s innovation in machine learning and artificial intelligence, which they feel can support the core search business and is now being applied across all the company’s growth initiatives. They also point to Google Cloud, which is the largest cloud infrastructure and engages in more technology, infrastructure research and development in headcount and dollars than any other company. This gives the company the strength and wherewithal to compete and differentiate itself from Amazon AWS and Microsoft’s Azure.

The Jefferies price target for the stock is $1,000. The Wall Street consensus price objective is $965.81. Shares closed yesterday at $829.02.

Amazon

This absolute leader in online retail and a dominate player in cloud storage business remains the top pick at Jefferies. 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.

Amazon Web Services (AWS) is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market. The company serves developers and enterprises through AWS, which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.

Amazon reported a mixed quarter in October, and top Wall Street analysts noted that 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. The Jefferies fiscal 2017 earnings expectations are 15% ahead of the Wall Street consensus estimates.

Jefferies has a $950 price target. The consensus target is $928.53, and shares closed Wednesday at $807.48.

Facebook

This huge social media leader posted gigantic numbers last year that truly blew most of Wall Street away. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.

Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.

Most Wall Street analysts point to the fact that Facebook remains the top beneficiary of the adoption of mobile internet trends, with total U.S. internet time spent on Facebook and Messenger. Facebook also develops Oculus VR technology and content platform, which allows people to enter an immersive and interactive environment to play games, consume content and connect with others.

Top Wall Street analysts feel that Facebook’s long-term forecasts are more easily attainable, especially as the company continues to grow and employ new platforms for online advertising. It should be noted that Facebook had grown to an astounding $370 billion market cap in less than five years.

The $170 Jefferies price target compares with the consensus target of $153.67. Shares closed most recently at $127.92.

NVIDIA

This top chip stock reported strong earnings all last year and was the top performing stock in the S&P 500. 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 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 analysts feel the stock is maturing to a platform company from a pure chip company, and many agree that the stock should continue to benefit from four secular trends: virtual reality, PC gaming, chips in the automobile industry and graphic processing units in the cloud.

The company reported incredible quarterly numbers in November, and forward guidance also came in to the upside. Revenues beat consensus estimates by 19%. Core gaming grew 62%, but data center grew 193% and auto grew 61%, and the latter two now account for 18% of growth, a significant amount but a number that could get much bigger.

Some analysts estimate $5 earnings-per-share power in three years. Tesla announced that the company’s GPUs will power its deep learning system in every Tesla car. If Tesla is successful, many top analysts feel that every major auto maker will follow with similar capability.

Jefferies has a gigantic $125 price target. The consensus target of $99 is less than the most recent close at $102.95.

These companies have run hard, but staying with the mega-cap leaders is also a good strategy in a pricey market. Investors may want to consider scaling money into the shares in the first quarter, in case the market hits some choppy water.