Technology

RBC Has 6 Top Tech Stocks to Buy for the Rest of 2017

Lee Jackson

Published: August 7, 2017 8:25 am

Last Updated: January 12, 2020 9:24 am

With second-quarter earnings reporting all but done, Wall Street pros and investors are looking hard for companies that are poised to do well for the rest of 2017. With the stock market trading at all-time highs, and at very expensive levels, it’s critical to own stocks that can beat estimates or that have substantial tailwinds to drive growth and earnings.

A new RBC research report notes that while demand in technology remained strong in certain areas like personal computers, memory, iPhones and industrial, there was some weakness in automotive, China smartphones, enterprise servers and networking. The analysts at the firm are focused on six companies they feel can beat current expectation and have momentum. All are rated Outperform, and two are top picks.

Apple

This technology giant posted big second-quarter results and has raced to 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.

RBC 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.

Apple investors receive a 1.75% dividend. The RBC price target for the stock is $168, and the consensus target is $158.95. Shares closed trading on Friday at $156.39.

Amphenol

This is the top pick in the sector and has remained a favorite at RBC for some time. Amphenol Corp. (NYSE: APH) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.

Amphenol designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa and sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The company has a diversified presence as a leader in high-growth areas of the interconnect market, including: automotive, broadband communications, commercial aerospace, industrial, information technology and data communications, military, mobile devices and mobile networks.

RBC noted this in the report:

Amphenol has 4% exposure to Cisco, which is expected to report on August 16th, mainly in routers. The company posted solid numbers on the quarter and should be fine.

Shareholders receive a 0.98% dividend. RBC has an $81 price target, while the consensus target is $79.73. Shares closed Friday at $77.66.

Broadcom

This stock is a top pick at RBC and across Wall Street, and it derives 20% of its business from Apple. Broadcom Ltd. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.

Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.

The analysts note that the stock is underowned compared to peers, and the 40% iPhone content growth, combined with the closure of the Brocade purchase, which they feel is accretive, are very positive catalysts. They also feel dividend growth is possible.

Broadcom investors receive a 1.65% dividend. The $270 RBC price target is lower than the $273.81 consensus target. Shares closed Friday at $249.17.

CDW

This is a way for more conservative accounts to play the technology sector. CDW Corp. (NASDAQ: CDW) provides IT products and services to business, government, education and health care customers in the United States and Canada. It offers discrete hardware and software products to integrated IT solutions, such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

RBC has highlighted this company in the past as having virtually no exposure to China, and it is a very attractive and somewhat defensive small/midcap play for investors. The firm also thinks that the company has benefited from the integration of U.K. IT services and solutions provider Kelway, although CDW has implied numbers for the quarter from Kelway will be down.

The analysts have cited in the past the unique culture and the compensation structure, and the Dell Partnership as among the top reasons to own the stock. They also pointed out the company has negotiated weak PC sales periods in the past, and the current uptick is a positive going forward. And they think the tailwind from shares repurchases may not be factored in.

CDW investors receive a 1.00% dividend. The stock has a $70 target at RBC. The consensus target is $66.60, and shares closed Friday at $63.30.

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NVIDIA

This top chip stock has reported very strong earnings, and it was the top performing stock in the S&P 500 last year. NVIDIA Corp. (NASDAQ: NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.

NVIDIA is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

Top Wall Street analysts feel the stock is maturing to a platform company from a pure chip company, and Jefferies sees the stock continuing to benefit from four secular trends: virtual reality, PC gaming, chips in the automobile industry and graphic processing units (GPUs) in the cloud.

The company posted gigantic first-quarter results that well exceeded Wall Street estimates, with much of the gains directly from the firm’s huge data center and AI businesses. The company reports again this week, and many feel it can beat consensus estimates for the quarter.

Investors receive a 0.33% dividend. RBC has set its price target at $175, and the consensus target is $141.56. Shares closed Friday at $167.21.

Western Digital

This long-time innovator in the storage industry is a leader in the total addressable HDD market. 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.

The company 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 company reported solid results, but some analysts were concerned with the lower guidance and felt that margins may have peaked. The guidance, while conservative, leaves the company plenty of room to hit calendar 2017 expectations and perhaps exceed them. With 3D NAND transition continuing and 64 layer shipping, the stock has plenty of room to run.

Shareholders receive a 2.46% dividend. The $115 RBC price target is in line with the consensus target of $115.22. Shares ended last week at $81.17.

Six top companies to buy for the rest of 2017 and beyond. Given the large move in the shares, investors may want to buy partial positions now and see if we don’t get a back-up in the next 60 to 90 days.