4 UBS Most Preferred Tech Stocks to Buy for the Rest of 2017

In what can only be described as a good year, the market has had its fits and starts, after being up solidly early in the year and see-sawing this summer. Investors are casting a wary eye toward the fall, and with good reason, as September and October historically have been shaky.

A recent UBS report focuses in on the firm’s Most Preferred Information Technology picks, and many of the stocks that make the list have a cloud presence and offer solid growth going forward. With the IT index far outperforming the S&P 500 this year, it make sense for growth accounts with more risk tolerance to look at adding or initiating positions in shares of the top companies.

Cisco

This top mega-cap technology stock pick at UBS makes good sense for investors seeking tech exposure. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.

It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.

Wall Street likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.

While Cisco reported fiscal fourth-quarter results that beat or matched most estimates, revenue was down year over year for the seventh consecutive quarter. Despite the decline, Cisco has beaten earnings and sales estimates for every quarter since CEO Chuck Robbins took over from John Chambers two years ago, and most think he has the tech giant headed in the right direction.

Cisco shareholders are paid an outstanding 3.68% dividend. The UBS price objective for the stock is $37, while the Wall Street consensus target price is $35.73. The shares closed on Tuesday at $31.48.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers, and the Internet of Things is a big part of the shift. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.

The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

Earlier this year, Intel announced the purchase of Mobileye for $15.3 billion. The Israel sensor company gives the chip giant a leg up in the autonomous car competition, and it also adds many other capabilities. This is expected to be a big Internet of Things (IoT) segment going forward.

IoT is so huge that Intel expects the computing total addressable market (TAM) in autos to significantly outpace vehicle unit TAM. In fact, by Intel’s estimates, autonomous cars will demand a 10 times increase in compute throughput, a 1,000 times increase in pixels and 1,000 times increase in storage between 2017 and 2030. In dollar terms, that translates to in-car TAM (systems, data and services) of $70 billion and another $40 billion of TAM for autonomous driving-related data center spending.

Intel investors are paid a solid 3.15% dividend. UBS has a $40 price target, and the consensus price objective is $39.81. The stock closed Tuesday at $34.73 a share.

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Micron Technology

Micron Technology Inc. (NASDAQ: MU) is a global leader in advanced semiconductor systems. Its broad portfolio of high-performance memory technologies, including DRAM, NAND and NOR flash, is the basis for solid state drives, modules, multichip packages and other system solutions. Its memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.

Micron and Intel announced last year the availability of their 3D NAND technology, the world’s highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers and nearly every cell phone, tablet and mobile device.

Here are three big positives for the company for 2017 and beyond:

1. Lack of wafer supply for DRAM with limited new node migration.
2. Continued tightness in NAND, which the analysts feel is driven by slower industry transition to 3D combined with an increase in enterprise SSD bit growth.
3. Price increases across NAND flash’s three key segments, along with mix improvement, all of which bode well for the company’s NAND profitability for 2017.

The analysts noted this in the report:

After a prolonged period of relentless price declines, we believe the memory market (especially DRAM), industry pricing has recently stabilized due to a combination of secular and cyclical forces including industry consolidation, relatively healthy demand, and more rational supply.

Note that the $36 UBS price target is lower than the consensus target of $43.40. Shares closed on Tuesday at $31.48.

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Splunk

This stock 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 solid earnings recently and the analysts said this in the research report:

Cloud continues to gain ground with revenue +20% quarter over quarter and more than doubling year- over year to $21 million. Billings also outperformed at +32% year over year to $303 million and a comfortable 7% ahead of consensus. Better topline helped profits as well, with earnings per share of $0.08 and $23 million of operating cash flow beating consensus at $0.06 and $18 million respectively.

The UBS price target for the shares is $74. The posted consensus target is $74.14, and the shares closed Tuesday at $64.38 apiece.

Two old-school tech giants, a top chip company and a big data leader, all of which make good sense for aggressive accounts looking to stay in tech, and they are among the most preferred companies at UBS.