When you have the kind of paralyzing month that the markets presented to investors in February, everybody starts to doubt the strength that has been present for years, and with good reason. Rates are going higher, but they remain historically low. The potential for trade wars seems omnipresent, although the president said Monday that he may not impose tariffs if a fair NAFTA deal was renegotiated.
The reality is the economy may be on the best footing in 20 years, and while market gains like we saw 2017 may not remain the norm, there is every reason to remain optimistic, especially as the Nasdaq continues to show leadership in the market, and top U.S. tech companies dominate that index.
A new Jefferies research report highlights the firm’s top technology picks. Here we focus on five that continue to show dominance in their arenas of technology. All make sense for growth accounts with higher risk tolerance levels.
Activision Blizzard
This remains a top pick on Wall Street and Jefferies remains very positive on it. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.
The company reported outstanding results that beat expectations, and the Jefferies report said:
Activision reported results, beating forecasts and guiding 2018 conservatively. Since 2011, the company has ended the year 19% higher than the initial outlook, on average, which suggests $3.00 in earnings per share could be achievable. We note that the beat this quarter was driven by a resurgence on Call of Duty as well as in game spend. We raised estimates and note that our new $3.02 estimate for 2019 is ahead of consensus.
Shareholders receive just a 0.51% dividend. The Jefferies price target for the stock is $86, and the Wall Street consensus target is $74.04. Shares closed Monday at $75.10.
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Amazon
This absolute leader in online retail and dominant player in cloud storage business remains the top internet pick at many firms on Wall Street. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.
Amazon Web Services (AWS) is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market. The company serves developers and enterprises through AWS that provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses.
Amazon absolutely blew out earnings, and Jefferies said this:
The company reported robust fourth quarter revenue results. Operating Income was record-high driven by solid ad revenue and robust retail volume. As usual, guidance was conservative on margins for the first quarter. We find our long-term thesis intact and reiterate our view that Amazon will take online penetration from 10% currently to 25-30% long-term, the AWS opportunity will be a revenue growth engine with margin accretion for the entire business while international opportunities provide even further upside.
Jefferies has a massive $1,750 price target, and the consensus target is $1,583.84. Shares closed at $1,523.61 on Monday.
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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 on 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.
Alphabet provided mixed results, and the analysts said this:
Company reported fourth earnings and the quarter raised concerns around margin compression. Rising traffic acquisition costs and a seasonal spike in sales and marketing expenses drove operating margins below 30%. Despite these factors, 2017 op margins remained at 32%, in-line with 2016, and we think margins could drift modestly higher over time given the investments the company has in place. Top line outperformance continued with 24% revenue growth and we note Google Cloud is now at a $4 billion run rate.
The $1,360 Jefferies price target compares with the $1,256.16 consensus estimate. Shares closed Monday at $1,094.76.
Nvidia
This top chip company has reported strong earnings the past few years and remains a top pick at Jefferies for 2018. Nvidia Corp. (NASDAQ: NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.
Nvidia is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.
Top analysts feel the stock is maturing to a platform company from a pure chip company, and Jefferies sees the stock continuing to benefit from four secular trends: virtual reality, PC gaming, chips in the automobile industry and graphic processing units (GPUs) in the cloud.
Once again the company recently shredded earnings expectations, and the analysts explained why:
Nvidia reported this week and beat earnings per share by $0.35. Company guided April quarter sales 17.5% ahead of consensus. Data Center revenues grew >100% for the 7th consecutive quarter. We raise fiscal 2019 estimates by 40% and our new price is 40x our new calendar 2019 EPS estimates. Our new 5 year EPS power target is $15.50, up from $13.
Investors receive a 0.28% dividend. Jefferies raised its price target to $300. The consensus target is $221.58, and shares closed Monday at $235.65.
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Salesforce
This top company reported solid fiscal 2018 second-quarter results as billings drastically improved, and Jefferies recently upgraded its rating to Buy. 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.
Historically Salesforce tends to outperform in the first quarter of a calendar year, and with over a month remaining in the quarter for 2018, the stock would be a great pickup on another steep reversal.
The Jefferies price target is $135. The consensus price objective is $124.42, and shares closed on Monday at $122.50.
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These five companies dominate their respective silos in the technology sphere and look to continue to do so for years to come. While not suitable for every investor, those looking for growth companies that will continue to grow their business with capital reinvestment and an eye towards the future, these are among the very best.
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