Technology has had a nice run so far in 2017, and the big difference for investors is that many on Wall Street expect the results this quarter to be much more stable from an earnings standpoint than last quarter. Plus, it is also possible that the sector sees broader, more stable product sales in personal computers, servers and enterprise storage. With the focus still on cloud computing, things look bright for technology shareholders.

In a new research report, RBC is cautiously optimistic on the quarter and focused on some top companies it feels have the ability to surpass current estimates. The report offered three focus picks for investors, one each from the large, medium and small cap arenas.

Apple

This technology giant has been on a huge run, continues printing all-time highs and is the top large cap pick at RBC. 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.

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 some see the possibility for not only an increase in the dividend but continued share buybacks.

The RBC team 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. While the firm does note higher commodity prices are a potential headwind from NAND and DRAM pricing, it sees service growth and acceleration as another distinct positive.

RBC also stressed the benefit from lower taxes and more so the cash repatriation given Apple’s huge cash reserve, 91% of which is offshore. Both the president 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 are paid a 1.65% dividend. The RBC price target for the stock is $157, and the Wall Street consensus target is $147.61. The stock closed trading on Monday at $141.83 a share.

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 a very positive earnings pre-announcement 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 for 2017 and beyond 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.

RBC sees the secular growth in storage as a big positive, and Western Digital predicts a fourfold increase between 2016 and 2020. Three big areas should also pay off handsomely:

1) Data Center capacity is expected to increase at a 40% compounded-annual-growth rate between 2015 and 2020.
2) The company’s Data Center Solutions is expected to drive all-incremental revenue growth in the coming years.
3) Capacity HDD’s are expected to continue growing and should be four to five times more cost effective due to NAND by 2020.

Western Digital shareholders are paid a solid 2.38% dividend. RBC has a $96 price target, and the posted consensus price objective is $93.37. The stock closed most recently at $84.16 per share.

Arris International

This stock has been an RBC favorite for some time and is the top small cap pick. Arris International PLC (NASDAQ: ARRS) provides media entertainment and data communications solutions in the United States and internationally. It operates through two segments. The Customer Premises Equipment segment offers various product solutions, including set-top boxes, gateways, digital subscriber lines and cable modems, and embedded multimedia terminal adapters and voice/data modems that enable service providers to offer voice, video and high-speed data services to residential and business subscribers.

The Network & Cloud segment provides cable modem termination system, converged cable access platform, multichannel video programming distributors, programmer equipment, ad insertion technologies and equipment in the ground or on transmission poles, as well as equipment used to initiate the distribution of content-carrying signals.

While some of the Wall Street concern over the set-top box arena is valid, the company still holds a 27% to 30% market share, and many analysts feel that it will be years before demand slows. Trading at a low nine times estimated 2018 earnings, the stock is cheap at current levels, and if the company guidance stays in line with current forward estimates, the analysts feel confidence could begin to return.

The $33 RBC price target is about the same as the consensus target of $33.13. Shares closed most recently at $26.20 apiece.

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These three stocks are very solid picks in a market that is pretty rich. Investors may want to buy partial positions and see how actual results come in.

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