With the final numbers coming in for the third quarter, one thing seems obvious: The rich are getting richer, and some of the top technology, and especially the favored gaming companies, look to drive strong sales through the final six weeks of the year and in 2018 and beyond. With the busy holiday season upon us, and a possible huge software refresh for corporate America a possibility, three companies look like solid buys now for aggressive portfolios.
In a series of three new research reports Merrill Lynch analysts have not only reviewed recent earnings but more importantly assessed forward guidance. It’s important to remember that with the market trading at record highs, forward guidance and earnings growth are critical to maintaining equilibrium, and these three companies look poised to do just that.
AMD
After years of frustrating performance, Advanced Micro Devices Inc. (NYSE: AMD) appears to have turned the corner and is a hot commodity on Wall Street. It is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.
The analyst feels that AMD, which is releasing the first major offering in five years, the Ryzen chipset, is in his words “uniquely positioned” to compete with the big players like Intel and NVIDIA in the $50 billion total addressable market for personal computers, gaming, artificial intelligence and servers.
The company posted solid third-quarter numbers, but the shares were jarred by what many analysts felt was very poor guidance. Also, the company recently announced a chip partnership with Intel. The analysts noted the partnership and said this:
Intel and AMD announced a collaboration to package an Intel CPU and AMD GPU into a single package for high performance, thin laptops. No CPU competition overlap according to AMD; instead, expands GPU total addressable market (we estimate $140 million/1-2c sales/earnings per share opportunity) But tough to beat NVIDIA in gaming; checks show the company still leads in performance and retains dominant.
Add to this that Tesla is working with AMD to refine an AI chip for autonomous driving tasks in its cars. Many think the unconfirmed partnership would make sense, and while most would not expect the shipment of AMD chips to Tesla to have a material impact near term, it would constitute a critical win for AMD and support the thesis that the company is a primary beneficiary of the shift to parallel processing graphics processing units.
The Merrill Lynch price target for the stock is $18, and the Wall Street consensus target is $14.16. The shares were last seen trading at $11.25.
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Salesforce.com
This top company reported solid fiscal 2018 second-quarter results as billings drastically improved. 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.
Merrill Lynch continues to love the company and noted in a recent report:
We feel incrementally more positive following the company’s analyst day, and we raise our price objective. Salesforce.com guide for revenues of $20-$22 billion (17-21% compounded annual growth rate) in fiscal 2022 is consistent with our long-term framework and has upside. We see battle lines emerging given Salesforce-Google partnership versus Adobe and Microsoft as digitization becomes a pronounced theme.
Merrill Lynch raised its price target to $125 from $114. The consensus price objective is $108.08, and shares traded early Thursday at $103.45.
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Take-Two Interactive
This is a top video game producer that has cashed in with some super-hot titles. Take-Two Interactive Software Inc. (NASDAQ: TTWO) is a publisher and distributor of interactive software for gaming platforms from Sony and Microsoft and for the PC. The company is headquartered in New York, with development studios located around the world. Key franchises include Grand Theft Auto, Red Dead, Civilization, Borderlands, and Bioshock, as well as several licensed sports products such as NBA and WWE.
Interactive entertainment is huge on a global basis, and the industry is expected to reach the $100 billion mark in sales in 2017. In addition, top analysts are forecasting software compounded annual growth rates of an astonishing 9% between last year and 2019. Merrill Lynch noted this after the company posted stunning earnings:
Take-Two soundly beats fiscal second quarter and raises fiscal year 2018 outlook as Grand Theft Auto and NBA2K drive a strong digital quarter. Fiscal year 2019 outlook looking increasingly conservative given Fiscal 2018 digital upside. We estimate $800 million in free cash flow. Reiterate Buy, raise price objective; Remains top pick in the sector on franchise quality, digital trends, and potential upside.
The $106 Merrill Lynch price target was raised to $127. That is well above the consensus price objective of $106.89. Shares were last seen at $116.85.
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These three red-hot stocks all look poised to move higher in the coming months and years. While not suitable for all accounts, they may be just the ticket for aggressive investors looking to add alpha in a pricey market.
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