Technology

Red-Hot Tech Companies Highlight Jefferies Top Growth Stocks to Buy

Lee Jackson

Published: February 13, 2017 9:15 am

Last Updated: January 12, 2020 2:53 pm

After another huge week for the markets, things are starting to look a touch expensive, so it really makes sense for investors who buy growth stocks to hone in on the companies reporting good earnings with solid guidance, and those that are in the right growth area. The higher the market goes, the more stocks have to prove they are worth it, and at this level, it’s getting harder and harder.

Jefferies analysts are focused in on some outstanding growth stocks to buy, some of which have delivered blow-out numbers. While not suitable for all investors, they continue to make good sense for investors looking for growth stocks with good alpha potential.

Activision Blizzard

This company remains a top pick on Wall Street. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.

The company reported solid earnings last week that beat estimates, despite weaker Call of Duty sales, which the analysts had expected. The company’s forward guidance was better that expected, but Jefferies still feels the numbers are conservative.

Some analysts feel the company could earn up to $3 per share by 2018 if it can optimize the King Digital advertising opportunities and unlock synergies, which the analysts noted in the report that advertising in the company’s Candy Crush franchise was off to a solid start. They also highlight the possibility for stock buybacks and an increase in the dividend.

Jefferies noted last year that the new Overwatch game has blown past 10 million users since its release in late May of 2016 and has generated $500 million since its launch, already more than the analysts $400 million for the year.

Shareholders receive a 0.6% dividend. The Jefferies price target for the stock is 55, and the Wall Street consensus target is $48.10. The stock closed Friday at $47.23, up a whopping 18% on the day.

Lumentum

This top company looks to benefit big-time from the Facebook Voyager project. Lumentum Holdings Inc. (NASDAQ: LITE) manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East and Africa. It operates in two segments.

The Optical Communications segment offers components, modules and subsystems that enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables.

The Commercial Lasers segment offers diode, direct-diode, diode-pumped solid-state, fiber and gas lasers. This segment serves customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, and remote sensing, as well as in precision machining, including drilling in printed circuit boards, wafer singulation and solar cell scribing. Its lasers products are used in various original equipment manufacturer applications.

The company reported numbers that beat estimates, but the guidance for the next quarter was slight lower on revenue, and slightly higher on earnings per share. The analysts’ report noted:

Importantly, the company is working on several handset OEMs for 3D sensing and the CEO said he could see $100 million+ a quarter growing up to a $1 billion opportunity annually (Last 12 month revenues are about $1 billion), which we believe could drive upside to our estimates. We raise our estimates for fiscal 2017 and fiscal 2018, and they’re now 4% and 12% ahead of consensus.

This company is expected to provide Facebook with an open line system with white boxes such as terminal amplifiers and reconfigurable optical add drop multiplexers. This is all part of Facebook’s extensive new Voyager platform.

The $51.50 Jefferies price target compares with the consensus target of $46.17. The shares closed on Friday at $47.45.

PayPal

This company was spun-off from eBay in 2015 and is in the Jefferies Franchise Picks portfolio. PayPal Holdings Inc. (NASDAQ: PYPL) operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide.

PayPal enables businesses of various sizes to accept payments from merchant websites, mobile devices and applications, as well as at offline retail locations through a range of payment solutions across company’s payments platform, including PayPal, PayPal Credit, Venmo and Braintree products. Its platform allows customers to pay and get paid, withdraw funds to their bank accounts and hold balances in their PayPal accounts in various currencies.

The company has posted solid earnings, but the analysts noted in their report:

Company filed a 10-K this week, and in it they disclosed the receipt of subpoenas from the Department of Justice seeking documents related to the company’s historical anti-money laundering program. We will continue to monitor this, but we don’t believe these types of requests are uncommon. Other 10-K items include growth in PayPal credit, with balances up 28% year-over-year, and stable credit metrics. EBAY accounted for 22% of revs in 2016 down from 26% in 2015.

Jefferies has a $52 price objective, and the consensus target price is $46.83. The shares closed Friday at $40.58.

NVIDIA

This top chip stock has reported strong earnings for the past seven quarters and was the top performing stock in the S&P 500 in 2016. 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 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: virtual reality, PC gaming, chips in the automobile industry and graphic processing units (GPUs) in the cloud.

Once again the company reported blow-out earnings and is hitting on all cylinders. Jefferies analyst Mark Lipacis has been pounding the table on this company for going on two years and deserves a total high-five for this parabolic winner. He noted this:

The Company reported its 7th consecutive earnings beat this week. The Artificial Intelligence Datacenter business grew 205% year-over-year, beating consensus by 15%. Data Center is now 14% of sales and the second largest business behind gaming. We believe Data Center sales can eclipse gaming sales over the long-term. We also believe estimates could prove conservative over the next 6-12 months.

Jefferies raised its price target to $140 from $125. The consensus target is $103.50, and shares closed Friday at $113.62.

These four top growth stocks to buy make good sense going forward. Given the market’s big run, investors may want to consider partial positions here and see if we don’t get a pullback.