Technology

Jefferies Top Growth Stocks to Buy Are Red-Hot Momentum and Technology Giants

Lee Jackson

Published: February 4, 2020 7:00 am

Last Updated: February 4, 2020 7:01 am

The Wall Street firms that we cover increasingly agree that while the future’s still bright for the U.S. economy, the future may be one of much lower stock market gains than has been the norm over the past decade. When that is the case, then investing strategies often shift from indexing to a more disciplined stock-picking routine. That’s when investors need solid growth ideas.

Jefferies highlights the firm’s top growth stocks to buy each week, and this week is no exception. The Jefferies team has reviewed fourth-quarter results and they are very positive going forward on some of the biggest and most powerful technology and momentum giants. We found four that look like solid picks for more aggressive growth accounts.

AMD

This top company appears to have turned the corner in a big way, though shares sold off after earnings. Advanced Micro Devices Inc. (NYSE: AMD) 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.

Shares rose last year on the back of Google’s announcement concerning Stadia at last year’s game developers conference. The AMD CEO had noted that Google’s cloud gaming platform was using AMD Radeon GPUs, and the announcement confirmed it. The close partnership suggests that Google ultimately may announce that it will use EPYC 2 server MPUs.

Despite solid results, the shares backed up after the report, and the analysts noted this:

The Company reported last week and fourth quarter revenues/EPS beat by 90 basis points/$0.01, though the first quarter outlook was 3.4% below consensus due to lower consoles. For 2020, AMD guided to 28-30% revenues growth and gross margins to increase by 2.3% to 45%. However, our bottoms up gross margin calculation suggests conservatism in the gross margin outlook and we think the company takes share for the next two years. We expect server share gains to accelerate as cloud customers become more familiar with EPYC and believe the March 5th analyst day could be a catalyst.

Jefferies has a solid $58 price target on the shares, which compares with a lower Wall Street consensus target of $47.72. The shares closed Monday at $48.02 apiece.

Facebook

The huge social media leader has been on a roll, and the analysts remain very positive. Facebook Inc. (NASDAQ: FB) is the largest social network, with over 2.3 billion monthly active users and over 1.6 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.

The company’s 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, enables people to reach others instantly, as well as enable businesses to engage with customers. WhatsApp Messenger is a mobile messaging application.

The company posted very solid fourth-quarter results, and Jefferies said this:

Company reported last week and stock beat expectations by 1%/2% on the top/bottom line, respectively, though investors were looking for more of a beat with the expectations high into the print (shares were up +9% YTD). Going forward, management expects revenue growth deceleration in the first quarter and said that the majority of the ad targeting headwinds are ahead of the company. That said, we still see mid-20% revenue growth for fiscal 2020 versus 27% in fiscal 2019. We would be buyers on any stock weakness. We are excited about commerce advertising, Facebook messenger and Instagram.

Jefferies has a $250 price target, and the consensus target is in line at $249.33. Facebook stock closed most recently at $204.19.

This top legacy software and cloud technology stock has been posting all-time highs, and it has a massive $133.8 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses and supports a wide range of software products. It is also considered one of the best companies to work for.

The company has transformed its business model from a component-driven model (PC, server) to one driven by the need for cloud capacity. The cloud was big in the 2019 earnings reports and will remain a growing part of the software giant’s earnings profile.

Many Wall Street analysts agree 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 offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service. Other analysts maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users.

Jefferies had this to say:

Microsoft reported strong fiscal second quarter results across the board with Azure accelerating to an impressive 64% year over year growth rate vs. 63% last quarter. Total revenue growth was 15% and management guided double digit revenue growth and 2% of operating margin expansion in fiscal 2020. We continue to see strong visibility into double digit percentage revenue growth, supported by multiple drivers (Intelligent Cloud, Productivity & Business Processes) and secular trends for the foreseeable future.

Microsoft stock shareholders receive a 1.17% dividend. The $195 Jefferies price target compares with the $192.35 consensus price objective, as well as the most recent close at $174.38 per share.

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Tesla

This has been one of the most talked about companies over the past two years, and the Jefferies team remains very positive on the shares. Tesla Inc. (NASDAQ: TSLA) manufactures and sells electric vehicles, particularly its high-end Model S and X, as well as the mass-market-oriented Model 3. It makes some of America’s most eco-friendly cars.

Tesla also generates revenue from selling zero-emission vehicle credits to original equipment manufacturers, installing, operating and selling solar energy systems (previously SolarCity), and manufacturing and selling energy storage systems to customers.

The stock has been on a huge short-squeeze driven run, and CEO Elon Musk is unpredictable as well. However, the analysts remain very positive and noted this after the fourth-quarter report:

The Company reported last week and fourth quarter earnings were in-line, while free-cash-flow came in two times ahead of consensus at ~$1 billion and net debt down to $7.2 billion. Management is guiding deliveries “comfortably” above 500,000 units for 2020 (vs. consensus 476,000 and Jefferies estimates of 481,000) with production above deliveries and ~50% growth in energy. As such, we see room for consensus to move higher. Management did not provide guidance on capex, but continues to expect positive net income and free-cash-flow every quarter. Noted the coronavirus creates some uncertainty with 1-2 week mandated shutdowns, which could introduce some risk to first quarter results.

The Jefferies price target remains at $600. The consensus target is $442.65, and Tesla stock ended Monday way above both levels at a stunning $780, up almost 20% on the day.

These four companies all offer investors strength in their specific technology industries, as well as the ability to generate some significant portfolio alpha. These top stocks are suitable for growth accounts that have a larger degree of risk tolerance.