Technology

JPMorgan Out With Top Ranked Tech Networking/Hardware Stocks to Buy

Lee Jackson

Published: March 16, 2017 8:25 am

Last Updated: January 12, 2020 1:55 pm

Two sub-sectors of technology that have performed very well recently are the networking equipment and information technology hardware arenas, and with good reason. After solid fourth-quarter reports, a ton of focus remains on cloud storage and computing and on mergers and acquisitions deals. Bottom line, investors have moved more capital toward the top stocks.

In a new research report, JPMorgan makes the case that while some of the optical names underperformed, they are expected to recover, as a real slowdown in the silo is very unlikely. The firm also has ranked its top picks in the networking/hardware areas, and while there is only one change in the top five, all look like solid buys now for more aggressive accounts. All are rated Overweight and here ranked from 1 to 5.

Viavi Solutions

This smaller capitalization company remains in the number one slot and has solid upside potential. Viavi Solutions Inc. (NASDAQ: VIAV) is a global provider of network test, monitoring and assurance solutions to communications service providers, enterprises and their ecosystems, supported by a worldwide channel community including Viavi Velocity Solution Partners.

The company delivers end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability. Viavi is also a leader in high-performance thin film optical coatings, providing light management solutions to anti-counterfeiting, consumer electronics, automotive, defense and instrumentation markets.

The analysts noted in their report:

We continue to see material upside to Viavi’s earnings from 3D sensing in the new iPhone as well as ongoing restructuring. We also believe accretive consolidation
deals are a possibility.

The JPMorgan price target for the stock is $11, and the Wall Street consensus target is $10.56. The shares closed Wednesday at $9.90.

Juniper Networks

This solid technology stock has been on a long roller-coaster ride for investors over the past two years. Juniper Networks Inc. (NYSE: JNPR) is a provider of high-performance network infrastructure to service providers and enterprises. Key products include IP-based routers for service provider core and edge networks, security solutions and high-end enterprise routing equipment. Juniper’s products support converged data, voice, video and wireless applications across extended networks.

The company reported strong fourth-quarter numbers but guidance was below expectations on gross margin pressures and higher operating expenses. Top analysts feel that new switches and routers should ramp up on cloud demand while other businesses like telecom and security stabilize.

Shareholders are paid a 1.41% dividend. JPMorgan has a $32 price target, and the consensus price objective is $28.43. The shares closed most recently at $28.30.

Ciena

This company has had a very up and down 52 weeks, and has frequently been the subject of takeover rumors. Ciena Corp. (NASDAQ: CIEN) is a vendor for high-capacity optical transport and Ethernet switching equipment to carriers, enterprises, cable operators and governments. It specializes in transitioning legacy communications networks to converged, next-generation architectures capable of efficiently delivering a broader mix of high bandwidth services.

The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN configuration for the 5410 Reconfigurable Switching System.

The analyst report noted:

Ciena remains a top pick due to an expected multi-year ramp in 100G optical spending which should continue to accelerate in 2017. We also see good traction on major deals like the Indian defense network that should act as a tailwind in 2017.

The JPMorgan price target is $30. The consensus target is $28.49, and the shares closed Wednesday at $23.74.

Apple

This technology giant has been on a huge run and continues printing all-time highs. Apple Inc. (NASDAQ: AAPL) revolutionized personal technology with the introduction of the Macintosh in 1984, and it is among the leaders in the world in innovation with the iPhone, iPad, Mac, Apple Watch and Apple TV.

Apple’s four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services, including the App Store, Apple Music, Apple Pay and iCloud.

Apple shares have shown a nice move in the Trump rally but volatility has crept into the stock. Top analysts have noted that the iPhone 7 family performed much better than the prior model, and there is big consumer interest in iPhone 8. They also stress that the company remains committed to its capital allocation program, and Baird sees the possibility for not only an increase in the dividend but continued share buybacks.

JPMorgan thinks the iPhone 8 opportunities are solid, as the firm, like others, feels the product will have significant upgrades. Toss in the easier comparisons and the strong average selling prices, and the new phone is a distinct positive.

The analyst also stresses the benefit from lower taxes, and more so the cash repatriation, given Apple’s $238 billion cash reserve, 91% of which is offshore. Both President Trump and Congress have indicated they want to lower the tax rate on repatriating cash to the United States, with some seeing the rated dropped to as low as 8% to 10%.

Apple investors receive a 1.62% dividend. The $142 JPMorgan price target is in line with the consensus target of $142.69. The stock ended Wednesday at $140.46.

Commscope

This company rounds out the five top ideas at JPMorgan. Commscope Holding Co. Inc. (NASDAQ: COMM) is a leading provider of antennas, cabling, connectors and other connectivity equipment for enterprise and service provider customers. The company is a market leader in its three segments: Wireless, Enterprise and Broadband.

The company reported strong fourth-quarter results but guidance for the first quarter missed consensus estimates. 2017 guidance as a whole was soft but mostly in line. North American fiber and wireless demand drove the outperformance and network densification continues to be a positive trend. International markets were weak but fiber, deleveraging, cost synergies and potential regulatory upside stories are intact.

JPMorgan set its price target at $45, and the posted consensus target is $43.07. The stock closed Wednesday at $39.74.

The revolution in data networking will only continue to grow as consumer and business demand for all Internet of Things and beyond continues to manifest. While attractive now, these stocks are only suitable for accounts with a high risk tolerance, as earnings or guidance misses can cause big volatility.