Technology
Dollars Flooding Into Technology: 4 Stocks Still Very Reasonable
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The stock market has not seen this kind of love for the technology sector in almost 20 years, and despite seeming similarities with the dot-com boom of the late 1990s, there is one huge difference. The companies that are now seeing the love from investors make money, lots of it , and many are poised to make more in the future. With a huge realm of new and profitable sub-sectors like smart devices, gaming, artificial intelligence, big data and so much more, the future is indeed bright for the tech sector.
Last week saw record inflows of investor money into technology, and while many people are already in, there are probably many investors wondering if everything is overbought and are there any stocks left to buy with solid upside potential?
We screened the Merrill Lynch technology research universe looking for companies that still look to be trading at reasonable multiples, are rated Buy, and still have some room to go higher. We found four that look like great stocks to look at now.
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 closed most recently at $11.26.
Alphabet
The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The search leader also pounded Wall Street estimates, and the analysts said this in their research coverage:
Alphabet delivered upside to revenue, margins, and GAAP earnings per share, Website ex-currency growth acceleration a key positive. Higher distribution traffic acquisition costs rate increase could temper enthusiasm, but profit growth trajectory intact. Raising estimates and price objective on higher 2018 estimates and multiple. Further upside on 2019 estimates.
Merrill Lynch recently raised its price target to $1,200 from $1,100. The consensus estimate is $1170.98, and shares were last seen trading at $1044.15.
24/7 Wall St.Microsoft
This top old-school technology stock has posted all-time highs this year and has a massive $121.79 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.
Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. Analysts also maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users.
The company released huge third-quarter results and the analysts noted:
Microsoft reported a very strong fiscal first quarter, beat gross margins by 2% due to commercial cloud gross margins +8% – as we previewed. Reiterate our Buy rating and increase the price objective. Multiple positive vectors – windows accelerating, commercial cloud annualized revenue run rate accelerating – key drivers for growth/margin inflection. Our new 10 year discounted cash flow analysis values the company at still only 22 times current year 2018 free cash flow and still below comps at 26 times.
Microsoft shareholders receive a 2.0% dividend. The $83 Merrill Lynch price target was raised to $98, while the consensus price objective is $87.57. The shares closed last Friday at $83.87.
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 stock also dipped after earnings, and Merrill Lynch noted at the time:
Western Digital stock traded down after earnings despite above Wall Street earnings per share guide for the fourth quarter and fiscal 2018, as investors concerned on peak margins. NAND supply-demand will not come into balance until mid-calendar 2018 and the company has plenty of room to meet its $13 fiscal 2018 earnings-per-share guide. Management reiterated belief that Toshiba cannot sell JV share without their consent. Western Digital expects to have NAND supply through 2029.
Shareholders receive a 2.25% dividend. Merrill Lynch has a $120 price target, and the consensus target is $113.81. The stock closed on Friday at $88.92.
Four top tech stocks to buy run the gamut from more conservative to a higher risk scenario. All have decent upside potential to the analyst’s price targets, and all are well situated in their silos of the tech sector.
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