With the holidays now long over and fourth-quarter earnings reports ready to start rolling out fast and furious, many of the top companies we follow on Wall Street are making some changes to the lists of their high-conviction stock picks for clients for 2018. With the market continuing to trade near all-time highs, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility as the political and world landscape looks to remain unsettled.
A comprehensive new report from Baird features the firm’s Best Ideas for 2018:
Our list of Best Ideas for 2018 features high-conviction recommendations from our team, which has been recognized consistently for quality and trustworthiness since 2004. Our best ideas are organized by growth or value and by sector. Growth ideas lead with a clearly identifiable catalyst we see unfolding soon, while value ideas take a longer view.
We screened the Growth and Value groups specifically for Technology and Services stocks and found five top plays for 2018. All have outstanding upside potential.
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.
Last year the company released its first major offering in five years, the Ryzen chipset, which many feel is 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. Baird noted this in the report:
Ryzen is shipping into PCs and represents another meaningful incremental growth opportunity for AMD. We think both PC and data center customers have an incentive to let AMD in, in order to gain pricing leverage, and we think multiple new product ramps will occur in the first half of 2018.
Electric car giant 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 though 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 Baird price target for the shares is $20, and the Wall Street consensus price objective is $14.28. The shares closed Tuesday at $11.82.
Cisco
This top mega-cap technology stock pick on Wall Street makes good sense for investors seeking tech exposure in 2018. 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.
Baird loves 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, which will still generate monster revenue. Cisco also could benefit from the tax being lowered on overseas money as it has a whopping $70 billion in cash, 90% of which is overseas.
Shareholders receive a 2.92% dividend. Baird has a $41 target price, and the consensus target is $39.23. Shares closed trading on Tuesday at $39.69.
Fortinet
Many on Wall Street have stayed positive on this network security company. Fortinet Inc. (NASDAQ: FTNT) is a pioneer in the unified threat management segment of network security solutions. Its security appliances offer the ability to run multiple security functions simultaneously, without a significant drop in throughput, enabled by Fortinet’s unique custom-ASIC architecture.
The company reported solid third-quarter results, but guidance for fourth-quarter revenue and billings came in lower than expected. In fact, the company’s management sees risk related to macro weakness in North Asia/Caribbean, soft Service Provider spending and complex sales cycles. Baird analysts had this say:
Fortinet continues to win up-market deals as evidenced by large deal wins. Management is talking more about its Fabric, multi-product deals, non-FortiGate products, and enterprise bundles. We don’t expect them to compete in every large enterprise deal but they are increasingly mentioned by large resellers.
The $50 Baird price target compares with the consensus target of $44.36. Shares closed Tuesday at $44.32.
Micron Technology
This is a global leader in advanced semiconductor systems and is another top value pick from Baird for 2018. Micron Technology Inc.’s (NASDAQ: MU) 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.
The company posted outstanding quarterly earnings recently and also provided forward guidance that exceeded Wall Street estimates. With memory demand drivers remaining somewhat underappreciated and with solid demand from end-markets such as data center, artificial intelligence (AI), deep learning, big data, mobile and autonomous driving, Micron continues to execute well on its manufacturing road map. The analysts expect the company to drive gross and operating margins higher in 2018, even if prices return to a more typical deflationary environment.
Baird has set its price target at $60. The consensus target is $58.89, and shares closed Tuesday at $42.97.
24/7 Wall St.Salesforce.com
This top software-as-a-service company reported solid second-quarter fiscal 2018 results as billings drastically improved, and it is another Baird Best Ideas list growth idea for 2018. 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. Top executives are taking notice of the company’s increasing group of product offerings, and Baird said why:
Salesforce has evolved in recent years into a strategic vendor which pioneered enterprise adoption of the cloud — a trend evident in expanding traditional SI support, large deals. Strong enterprise adoption of its core SFA (Sales Force Automation), and Service applications, which are driving replacements of legacy Client/server applications, has catapulted the company to the No. 1 market share position in CRM, ahead of Oracle and SAP.
The Baird price target is $125. The consensus price objective is $121.58, and shares closed on Tuesday at $109.15.
These three growth and two value stocks are on the Baird Best ideas list that make good sense for investors looking for tech exposure in 2018. With the sector blazing last year, it gives investors a choice for which road to go down in terms of strategy.
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