Technology

Merrill Lynch Has 4 Low-Priced Tech Stocks With Big Upside Potential

Lee Jackson

Published: September 28, 2017 8:20 am

Last Updated: January 12, 2020 7:43 am

A look at the current prices of many of the top technology stocks today can be somewhat discouraging, as the sheer sticker shock makes many of them almost impossible to own on a single-stock basis. Or sure, you can add them via a mutual fund or an exchange traded fund that owns the shares, but that kind of fractional ownership is often not the path investors want to take. One idea is to look for tech companies that are lower priced and offer big upside.

We screened the Merrill Lynch research universe looking for top-quality technology stocks that were priced under $20 per share, rated Buy and looked to have good potential to the firm’s price target. While not suitable for all accounts, aggressive investors may find these four right up their alley.

3D Systems

This stock has been hit hard and could offer the best upside for aggressive accounts. 3D Systems Corp. (NYSE: DDD) is a leading provider of 3D content-to-print solutions, including 3D printers, print materials and on-demand custom parts services for professionals and consumers.

The company has seven print engine technologies: Stereolithography, Select Laser Sintering, Multi-Jet Molding, Fused Deposition Modeling, Film Transfer Imaging, Digital Light Processing and Powder Binding. For 2016, 35% of revenue came from the Products segment, 25% from Materials and 41% from Services.

The Merrill Lynch price target for the stock is $20, and the Wall Street consensus target is $15.73. The shares closed Wednesday at $13.75.

FireEye

This stock was on fire a couple of years ago but was absolutely eviscerated after numerous earnings misses. FireEye Inc. (NASDAQ: FEYE) has been mentioned over the years as a takeover target, and trading 85% below highs that were printed this time three years ago, it may indeed be on the radar.

The company provides cybersecurity solutions for detecting, preventing, analyzing and resolving cyberattacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information.

FireEye also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors. Its Threat Analytics Platform helps to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, and its Malware Analysis System helps to manually execute and inspect advanced malware, zero-day and other advanced cyberattacks embedded in files, email attachments and web objects.

The company reported solid second-quarter numbers in August, and the stock has rallied smartly from lows printed in March.

Merrill Lynch recently raised the price target to $21 from $18, while the consensus target is $16.95. The stock closed Wednesday at $16.90.

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ON Semiconductor

This is another smaller cap play that aggressive accounts may want to look at. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic integrated circuits (ICs) and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications.

The company is in the midst of a transformation from a seller of commodity discrete chips into higher value added analog ICs both through organic growth and acquisitions.

The company has not historically had a meaningful exposure to Apple. However, most believe that its content is likely rising at Apple’s in next-generation devices. Specifically, it is gaining content in the company’s fast charging solution, which could mean that Apple adds about 5% to ON sales in 2017.

Merrill Lynch recently raised its price objective and feels that sales growth could be in the 3% to 6% range, versus its current 3% target and Wall Street’s 2% forecast.

The new Merrill Lynch price target is $23. The consensus price objective is $19.25, and shares closed Wednesday at $18.15.

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Pure Storage

This 2015 IPO could be offering investors big upside in flash storage. Pure Storage Inc. (NYSE: PSTG) is a leading vendor in the all-flash array market that addresses the larger $12 billion tier-1 storage area network market, as well as the $6 billion NAS market. All-flash arrays are disrupting hard disk drives, given better performance, better durability, higher reliability, lower power consumption and a smaller footprint. The company disrupts traditional selling models by allowing customers to use the same hardware for up to 10 years, offering free upgrades every three years for a service fee.

The company made a big change in management back in the summer, and Merrill Lynch noted:

The CEO change from Scott Dietzen to Charles Giancarlo should be seamless. We are not expecting financial milestones to change. Pure reported a strong quarter with a revenue/gross margins/earnings per share beat, and raised the low end of revenue guidance for the year. We view Pure’s ability to hit its $1 billion revenue goal in 2018 with increased confidence, Flash Blade product to strongly ramp.

The $18 Merrill Lynch price objective compares with the consensus target price of $15.75. The shares closed most recently at $16.15.

Four top tech stocks rated Buy that are priced under $20 — the lower price gives investors the chance to own a larger positions and the ability to add shares without taking out a second mortgage.