If there was ever a trade that was crowded over the past couple of years, it was the FANG stocks, or specifically Facebook, Amazon, Netflix and Google, and it seemed like they would never get hit. Yet, that trade hit a brick wall when the revelation that Facebook had the data of as many as 50 million users breached showed up on the tape. Sellers did what they always do: Sell first and ask questions later. Some of the biggest stocks have been hit very hard.
While there undoubtedly will be some change as a result, the technology revolution will march on, and one way to play it safe is to buy the huge mega-cap leaders. Five companies in this group are not only continuing to innovate and grow, but they are also buying back their own stock, and all are rated Buy at Merrill Lynch.
Apple
This technology giant has been hit recently on concerns that the iPhone X is not the huge home run that was expected. Apple Inc. (NASDAQ: AAPL) designs, manufactures and markets consumer electronics and computers, and it has developed its own proprietary iOS and Mac OS X operating systems and related software platform/ecosystem.
Revenues are principally derived from the iPhone line of smartphones, hardware sales of the Macintosh family of notebook and desktop computers, iPad tablets and iPod portable digital music players. The company also realizes revenue from software, peripherals, digital media and services.
Apple reported first-quarter results that beat expectations. It expects to make $60 billion to $62 billion in the current quarter, which came in below what Wall Street was looking for. iPhone sales fell from a year ago, despite expectations of modest growth.
With a stunning $252 billion overseas, Apple already has announced as part of a five-year, $30 billion U.S. investment plan, that it will make about $38 billion in one-time tax payments on its overseas cash, one of the largest corporate spending plans announced since the passage of a tax cut.
Between the spending plan, hiring 20,000 people, tax payments and business with U.S.-based suppliers, Apple has estimated it would spend $350 billion in the United States over the next five years. The investments in the United States could give the company a lot of latitude to buy back more shares and raise the dividend.
Apple shareholders receive a 1.5% dividend. The Merrill Lynch price target for the stock is $220, and the consensus target is $191.96. The shares closed trading on most recently at $167.78.
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Cisco
This top mega-cap technology company recently reported an outstanding quarter. 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.
The company reported outstanding results and a huge stock buyback as well. Adjusted earnings per share were up 10% from a year ago, with revenue rising 3% and topping consensus estimates. Along with a massive $25 billion share buyback plan, investors should be well rewarded going forward.
Shareholders receive a 3.1% dividend. Merrill Lynch has a $53 target price, and the consensus target is $48.85. The stock ended the past week at $42.89.
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Intel
This semiconductor leader is grabbing big Internet of Things and data center cloud spending. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. Its platforms are used in various computing applications, comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
Intel’s “data-centric” businesses now accounts for about 45% of revenues, versus less than 40% three years ago. The Data Center Group is poised to grow by high-single-digit percentage points over the next few years. In addition, many feel that Intel’s cloud hyperscale customers will continue to spend aggressively on cloud computing infrastructure over the next few years.
The company posted better-than-expected top and bottom line results for the fourth quarter of 2017. It already announced a 10% increase in the dividend as a result of the tax reform changes, and many expect a beefed-up stock buyback program to continue.
Intel investors receive a 2.4% dividend. Merrill Lynch recently raised its price target to $61. The consensus price objective is $53.25, and shares were last seen trading at $52.08.
IBM
This blue chip leader has rallied but still may be offering investors among the best entry point in years. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.
IBM’s five major segments are: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for their positive outlook going forward.
IBM posted better than expected fourth-quarter results, and for the first time in 22 consecutive quarters, revenue declining on a year-over-year basis has ended. Now that streak has finally ended, it looks like a positive sign as the company faces competition from faster-growing companies.
Shareholders receive a 3.8% dividend. The $200 Merrill Lynch price target is well above the consensus target of $170.75. Shares last closed at $153.43 apiece.
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Microsoft
This top old-school technology stock has posted all-time highs this year and has a massive $138.6 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 cloud was big in the recent earnings report, which was outstanding.
The company has been somewhat quieter on plans for its huge trove of overseas funds, but CEO Satya Nadella surely has big plans for any repatriated money, be it pay off debt, buy back shares, hire employees or spend on research and development.
Microsoft shareholders receive a 1.8% dividend. The $98 Merrill Lynch price target was raised to $106 recently. The consensus price objective is $104.55. Shares closed at $91.27 on Thursday.
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These five mega-cap technology giants all pay dividends, are buying back huge amounts of stock and are not under scrutiny for putting users data in jeopardy. With earnings reporting right around the corner, it may make sense to buy partial positions in front of the numbers, on the outside chance they disappoint.
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