Technology

4 Red-Hot Tech Stocks That JPMorgan Loves Into Earnings

Lee Jackson

Published: April 19, 2017 10:20 am

Last Updated: January 12, 2020 12:52 pm

Some have dubbed the current bull market as the “most hated” bull market ever. Despite its longevity, having started in March of 2009 and breaking out to a secular bull in 2013, participation is very low, especially among retail investors, compared to other bull runs. There are many reasons why, but one thing is for sure, with earnings expected to show some of the best growth in years, and new technology advances coming, the run could go higher.

One theme heading into earnings that the analysts at JPMorgan are excited about is Apple’s new iPhone 8 and 3D sensing and the companies exposed to the newest version of the iconic smartphone. Other areas they are bullish about is the HDD/NAND flash memory arena and broadband. The analysts are very positive on four top companies into the earnings season, and all are rated Overweight.

ADTRAN

The JPMorgan team is bullish on this top broadband play. ADTRAN Inc. (NASDAQ: ADTN) is a provider of networking and communications equipment. The company’s solutions enable voice, data, video and internet communications across a range of network infrastructures.

Its Network Solutions segment includes software and hardware products that enable communications service providers (CSPs) and enterprise customers to realize a fully connected world. It provides a full-range of network implementation, maintenance and managed services. Its solutions include Access & Aggregation, Customer Devices, and Traditional & Other Products. Its Access & Aggregation solutions are used by CSPs to connect their network infrastructure to their subscribers.

The JPMorgan analysts see the company very well-positioned as broadband trends and demand for all services related is huge, and the stock has been sold off, offering a very nice entry point.

The JPMorgan price objective for the stock is $25, and the Wall Street consensus target price is $22.63. The shares closed Tuesday at $19.60 apiece.

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 (OEM) applications.

The analysts are very bullish on the company as it is working on several handset OEMs for 3D sensing, and the CEO recently said he could see $100 million or more a quarter growing up to a $1 billion opportunity annually (last 12 month revenues were about $1 billion), which many believe could drive upside to current estimates.

JPMorgan has a $54 price target for the stock, and the consensus target is set at $49.35. The stock closed most recently at $45.30 a share.

Viavi Solutions

This smaller capitalization company 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 a recent 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 $13 JPMorgan price target compares with a consensus target listed at $10.56. The shares closed most recently at $9.84.

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.

The JPMorgan analysts and others around Wall Street see 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.

In addition many top analysts feel the company has a good chance at providing the winning bid for Toshiba’s NAND assets and that NAND pricing will continue to stay firm.

Western Digital shareholders are paid a solid 2.38% dividend. JPMorgan has set its price target at a stunning $116, while the consensus price objective is $93.37. The stock closed Tuesday at $82.87 per share.

These four stocks are very solid picks in a market that is pretty rich. Investors may want to buy partial positions in front of earnings, just in case there is some selling on the news.