Merrill Lynch Makes Huge Technology Changes to US 1 Stock List

By Lee Jackson Published Dec 14, 10:25AM EST

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With 2017 just about over and 2018 right around the corner, many of the top companies we follow here at 24/7 Wall St. are making some changes to the lists of their high-conviction stock picks for clients. With the market continuing to trade at all-time highs, it makes sense to examine the lists and make some changes, as we could have additional volatility as the political and world landscape looks to remain unsettled, and portfolio managers shuffle their holdings for next year.

In a new research report, the analysts at Merrill Lynch make a high-profile addition to the firm’s US 1 portfolio of high-conviction stock picks: Equinix Inc. (NASDAQ: EQIX). They also remove Lam Research Corp. (NASDAQ: LRCX), a tech stock that has been an absolutely lights-out performer for the past two years but has been hit hard recently.

We alsoscreened the US 1 list for other technology-related stocks that remain in the portfolio, and found three that look like solid picks for 2018.

Equinix

This is one of the larger capitalization companies in the data center industry, and it is the newest addition to the Merrill Lynch US 1 portfolio. Equinix provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific.

The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.

Equinix investors are paid a 1.77% distribution. The Merrill Lynch target price for the shares is $520, while the Wall Street consensus price objective is $522.13. The shares traded early Thursday at $455.75.

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Lam Research

This is one of the top chip equipment picks across Wall Street, but it was removed after a long run from the US 1 list. Lam Research designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.

Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.

Shareholders of Lam Research are paid a 1.07% dividend. Merrill Lynch has discontinued coverage of the company, hence the removal from the US 1 list. The posted consensus price objective was last seen at $226.65, and the stock traded at $181.25 Thursday morning.

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Broadcom

This company has been on fire over the past year and remains a top pick at RBC and across Wall Street. 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.

Broadcom has big exposure to the cloud through its Enterprise Storage segment (HDD controllers) and general data center build-outs in its Wired Infrastructure segment. Within HDDs, enterprise units are 15% to 20% of the business on a unit basis and 20% to 30% on a revenue/profit basis.

Broadcom investors are paid a 2.67% dividend. The Merrill Lynch price target was not available. The consensus price target is $316.41, and shares traded recently at $258.40 apiece.

Facebook

The huge social media leader has continued to post gigantic numbers. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.

Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.

Many feel that Facebook’s long-term forecasts are more easily attainable, especially as the company continues to grow and employ new platforms for online advertising. Facebook is growing at twice the rate of its large cap internet peers while delivering at least 50% operating margins.

Top analysts see further upside ahead from user growth, and the company sees upside potential to its $80 U.S. average revenue per user through better targeting, as well as improvements on Instagram.

The $210 Merrill Lynch price target compares with a consensus target of $208.21. The shares were last seen at $178.65.

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Salesforce

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.

The company’s guidance for revenues of $20 billion to $22 billion (17% to 21% compounded annual growth rate) in fiscal 2022 is consistent with top analysts’ long-term framework and has upside. Many see battle lines emerging given the Salesforce-Google partnership versus Adobe and Microsoft, as digitization becomes a pronounced theme.

The Merrill Lynch analysts see huge earning growth and they have a $125 price target. The consensus target is $121.76, and the shares were trading at $104.20.

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A couple of new changes to the Merrill Lynch US 1 list and three tech companies that have had a stellar run in 2017 and look poised to continue the massive growth in 2018. All these Buy-rated companies make good sense for long-term aggressive growth accounts.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.