One of the best places for investors to have been over the past year was the technology sector, and with good reason. Industry giant Apple Inc. (NASDAQ: AAPL) had a massive 86% increase alone in 2019. However, the question facing investors in the sector is simple: Where do we go now?
With fourth-quarter earnings reporting winding down, we decided to review the results, looking for tech stocks that delivered solid earnings, were rated Buy at Merrill Lynch and also paid solid dependable dividends. We found five stocks that look like solid investments for 2020 and that should hold up better if we get a protracted technology and momentum sell-off.
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Broadcom
This stock has rallied smartly off last summer’s lows and could potentially break out to new highs this year. Broadcom Inc. (NASDAQ: AVGO | AVGO Price Prediction) 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.
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Top Wall Street analysts like Broadcom’s leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many analysts see a cyclical rebound in industrial and communications demand.
Broadcom investors receive a very solid 4.07% dividend. Merrill Lynch has a $360 price target on the shares. The Wall Street consensus target is handily lower at $350.62, and Broadcom stock closed Thursday’s trading at $319.16 per share.
Corning
This company continues to be a huge player in the fiber optic world, and it resides on the Merrill Lynch US 1 stock list of top picks. Corning Inc. (NYSE: GLW) is a technology pioneer that manufactures LCD glass for flat-panel displays for multiple product lines.
Telecommunications (30% of sales) produces optical fiber and cable, component hardware and equipment, and photonic components for the telecommunications, CATV and networking industry. In addition, the company’s Environmental Technologies division (12% of sales) produces specialized glass, glass ceramic and polymer-based products for the automotive industry.
Corning offers shareholders a reasonable 2.84% dividend. Merrill Lynch has a $34 price target, while the consensus target was last seen at $30.17. Corning stock closed at $28.17 a share on Thursday.
IBM
This blue-chip giant still offers investors a very solid entry point. 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. But note that IBM is among the big corporations with the most debt.
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The company’s chief executive officer, Ginni Rommety, who had been in the position since 2012, recently stepped down, and the stock market greeted the news in a very positive manner. The solid quarterly report had the analysts saying this:
IBM reported revenue above the street on strength across all segments, particularly on Red Hat and strong mainframe cycle. We view cross IBM-Red Hat cross selling opportunity growing into 2020, return to total company growth, 4%+ dividend yield as strong positives.
IBM shareholders receive a large 4.13% dividend. The $170 Merrill Lynch price target compares with the $149.94 posted consensus target. IBM stock closed most recently at $156.76 per share.
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Qualcomm
This stock has been very volatile over the past year. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.
In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.
5G should prove to be big for the company, and the analysts said this after the company reported earnings:
Qualcomm reported a strong first quarter, and second quarter revenue/EPS guidance of $5.30 billion/88c was strong on the surface vs the Street’s $5.09 billion/86c. Second quarter Mobile station modem guidance of 135 million disappointed vs our 156 million, offset by $31 average selling price guidance which was significantly higher than our $25. The results prove that Qualcomm is starting to benefit from the global 5G cycle.
Shareholders of Qualcomm receive a very dependable 2.74% dividend. Merrill Lynch has raised its price target to $115 from $110. The posted consensus target is $99.74, and Qualcomm stock was last trading at $90.61 a share.
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Western Digital
This is a leader in the total addressable hard disk drive (HDD) market. Western Digital Corp. (NASDAQ: WDC) designs, manufactures and markets hard disk drives for use in enterprise storage, servers, desktop and laptop computers and consumer electronic devices. It also has a growing solid-state drive and storage systems portfolio and is currently the third-largest enterprise solid-state drive manufacturer.
The company sells its products directly to original equipment manufacturers, as well as distributors and retailers, and its production capabilities are vertically integrated. Western Digital posted solid results for the latest quarter, and the analysts noted this:
The company reported a strong quarter and guide with confidence in solidly expanding gross margins driven by flash pricing. Western Digital lost some share in capacity enterprise but we expect this to be a cyclical not structural issue. With earnings power headed toward $8+ in fiscal 2021, we see continued positive revisions and raise our price objective.
Western Digital shareholders are paid a 2.91% dividend. The recently raised Merrill Lynch price target is $90. The consensus analyst price target is $79.77, and the stock closed trading most recently at $68.70.
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These five tech stocks have solid upside to the Merrill Lynch price targets and also offer investors perhaps a more comfortable entry point than some momentum plays. There is a good chance the market could start to trade sideways as investors take profits during the spring, and these could be good vehicles for a sideways or downward move.
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