If any sector has given investors whiplash over the past month it’s technology, and with good reason. Many stocks in the sector are overbought, and many portfolio managers are overweight, so when quantitative funds that use algorithms start selling, like we saw a couple of weeks ago, the monkey-see monkey-do effect comes into play and everybody starts to sell. To stay in the sector, you have to stay with the companies that are delivering earnings and guidance that justify the current multiple.
In a series of new reports, Stifel is raising not only the ratings on some top companies, but the price targets as well. These companies are posting outstanding results, and in some cases coming in with metrics and guidance above expectations. The following four are rated Buy at Stifel.
Adobe Systems
This high-profile old-school software company has posted outstanding earnings. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content. The other segments are Digital Marketing and Print and Publishing.
Top analysts feel there are an additional 11.7 million potential users, driven by growth in the creative community, student and teacher penetration and conversions from the piracy. Market and value expansion provide additional upside. The company posted outstanding second quarter numbers and the rest of the year looks very solid,
Adobe is also reasonably safe route for investors looking to own a company with a marketing automation product, which has become huge. Adobe has a partnership with Microsoft as well.
The Stifel price target was raised to $163 from $150, and the Wall Street consensus price target is $146.61. Shares closed on Wednesday at $144.24.
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Analog Devices
This stock spiked recently and has come back into a good buy range. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
The company recently introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time-consuming.
The analysts believe that the Linear Technology acquisition, which closed recently, is a big positive. In addition, many on Wall Street feel that corporate management ultimately will exceed its $150 million of targeted synergies. Toss in a very positive recent analysts day, and the signals look strong.
Analog Devices investors receive a 2.25% dividend. Stifel has a $97 price target, and the consensus target is $95.02. The stock closed most recently at $79.98.
Red Hat
This is a 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.
The company posted solid results and the analysts noted this:
Hybrid Cloud Lifting Red Hat to New Heights: After the close on Tuesday, Red Hat followed up last quarter’s solid print with an even stronger performance in fiscal first quarter 2018 with revenue, operating margin, cash flow, and billings all coming in well ahead of expectations and management’s guidance. Following these two consecutive quarters of impressive results, we are upgrading shares from Hold to Buy.
Stifel raised its price target from $83 to $115. The posted consensus target is $95.20, and the shares closed Wednesday at $98.58, up almost 10% on the day.
VMware
This may still be one of the best stocks to own, especially after getting hammered recently. VMware Inc. (NYSE: VMW) provides virtualization infrastructure solutions in the United States and internationally.
The company’s virtualization infrastructure solutions include a suite of products designed to deliver a software-defined data center run on industry-standard desktop computers and servers, and support a range of operating system and application environments, as well as networking and storage infrastructures. Its solutions enable organizations to aggregate multiple servers, storage infrastructure and networks together into shared pools of capacity.
The analysts said this in the research report:
We are upgrading shares of VMware to Buy from Hold. We have increasing confidence in the company’s growth prospects given a series of strong earnings results combining healthy growth in newer initiatives (NSX, vSAN, EUC) along with better-than-feared declines in its core vSphere business. In concert with our checks it is becoming more apparent that enterprises of all sizes are adopting hybrid clouds at a faster clip than we originally assumed and we believe VMware’s emerging partnership with AWS will help extend the half-life of its massive vSphere installed base.
The $96 Stifel price target was boosted to $109, while the consensus target is $103.39. The shares closed most recently at $90.01.
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These four stocks are in the right place and what surely looks like the right time. For aggressive accounts it may make sense to scale money in, as the threat of another tech sell-off could be looming, so having some dry powder makes sense now.
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