Technology

UBS Has 4 Most Preferred Tech Stocks to Buy That Have Lagged Peers

Lee Jackson

Published: April 28, 2017 10:20 am

Last Updated: January 12, 2020 12:32 pm

In what can only be described as a good, but shaky year, the market has had its fits and starts, after being up solidly in January and February. Investors casting a wary eye toward May, with the famous Wall Street maxim “sell in May and go away” hanging like a sword of Damocles, may want to look at strong sectors, and then look for stocks with great fundamentals that have lagged their peers in the sector.

A recent UBS report focuses in on the firm’s Most Preferred Information Technology, preferring the stocks that make the list that have indeed lagged the competition. The noted this in the report:

Against the backdrop of healthy corporate IT spending, continued growth in digital advertising, and challenged smartphone demand, we prefer stocks that have lagged peers but have leading fundamentals. In our view, some of the best opportunities lie in our Most Preferred names in the Software and Services.

Four outstanding stocks were highlighted, and all make good sense for aggressive growth accounts.

Alphabet

The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.

Alphabet offers performance and brand advertising services. 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 analysts 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. That gives it the strength and wherewithal to compete with and differentiate itself from Amazon’s AWS and Microsoft’s Azure.

The company posted massive earnings this week, hammering analysts’ expectations. Revenue beat on Sites, Networks and Google Other. Paid clicks and CPC also were ahead of consensus. Wall Street is very positive on core margin improvement. Despite approaching $100 billion revenue run-rate, the company shows no signs of slowing down.

The UBS price target for the stock is $975. The Wall Street consensus target is $979.90 Shares closed before the earnings report at $891.44 but were trading at $927.01 Friday morning.

Red Hat

This is another solid pick for aggressive accounts. Red Hat Inc. (NYSE: RHT) is the world’s leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training and consulting services.

Last year the company formed a partnership with once bitter rival Microsoft that would bring more flexibility to hybrid cloud enterprise environments. Specifically, the partnership allows cloud products running under the Linux operating system to integrate with Microsoft’s cloud computing platform Azure, a huge move after years of competition.

Top analyst have noted the while the on-premise world that still relies heavily on Windows, upward of 90% of the public cloud runs on Linux (not all RHEL), and many of today’s modern infrastructure concepts, such as Containers, are built on Linux. That puts Red Hat in a unique position to benefit from the hybrid cloud (a blend of public and private clouds) as customers increasingly think about application mobility.

UBS has a $90 price target for the shares, and the consensus target is $94.16. The stock closed most recently at $88.15 per share.

Salesforce

This top company reported solid fourth-quarter results as billings drastically improved, and it will report its first quarter in early May. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide.

It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.

The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.

The company has recently been upgraded at several top Wall Street firms and looks to be breaking out of a triple top formation.

The $100 UBS price target compares with the posted consensus target of $96 and Thursday’s closing share price of $85.85.

Splunk

This stock also remains one of the top Buys on Wall Street. Splunk Inc. (NASDAQ: SPLK) provides a software platform for collecting, storing, indexing, searching and analyzing machine generated data, such as log files and configuration files, which are prevalent in every type of IT system, device and application.

Splunk technology is potentially applicable and disruptive in several market segments, including IT operations, security and compliance, and business intelligence. These market segments are collectively worth $28 billion today.

The company reported outstanding fourth-quarter results, beating expectations for all metrics including sales, margins, free cash flow and billings. While the guidance was below expectations, many think the first quarter will be the bottom, and shares are an outstanding buy at current levels.

The UBS price target is $81, and the consensus target is $72.33. The stock closed Thursday at $64.60 a share.

These four top companies look like very solid buys for aggressive growth accounts, and with earnings still on the horizon for the quarter, they may have some fresh room to run.