If any sector has dominated the market over the long bull run, and even in the “melt-up” rally off the March lows, it’s the technology, media and telecom (TMT) sector. This industry grouping includes most companies focused on new technologies. There is a substantial overlap between TMT and the 1990s idea of the new economy.
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Given the huge run in the sector, which is trading at a premium to the rest of the market, it makes sense for investors to look past the FANG constituents for other ideas that hold the potential for sizable gains. In a series of new reports, the TMT analysts at SunTrust are very positive on four top stocks that they feel offer compelling value and strong upside potential. While all four stocks are rated Buy, remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Alibaba
This continues to be among the most bought tech stocks on Wall Street, as well as one of the most valuable brands in the world. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services.
Alibaba has gone beyond e-commerce and developed into a sophisticated new type of conglomerate in the cyber-era with e-commerce as the base for the rest of the four businesses: logistics, finance, data-computing and cross-border infrastructure. Top analysts expect a whopping 24% compounded annual growth rate between now and 2020 for e-commerce in China.
The situation in China is improving and the analysts said this in the research report:
China’s latest NBS data shows that year over year online sales growth of physical goods is accelerating through April, approaching growth levels seen pre-COVID19, which we view as positive for the company. The negative trends management spoke to last earnings seem to have reversed somewhat, as the shift to online is accelerating, and China is slowly normalizing. While macro conditions remain a concern short-term, we view AliBaba as a winner long-term given its dominance of the Chinese economy and market, the insatiable appetite of China’s rising middle class, leadership in Cloud, its strong balance sheet and portfolio of strategic investments.
The SunTrust price target for the stock is $250, and the Wall Street consensus target is $222.54. Alibaba stock closed Wednesday’s trading at $216.79 a share.
CrowdStrike
Shares of this cybersecurity giant have rallied sharply off the March lows but still offer some tremendous value. CrowdStrike Holdings Inc. (NASDAQ: CRWD) is a leader in the endpoint protection platform (EPP) market. EPP solutions help protect enterprises’ internet-connected devices from cyberattacks, and there is a market shift from signature-based on-premises solutions to cloud-based platforms that use machine learning.
CrowdStrike’s platform is one of the few 100% cloud-based architectures and is uniquely positioned to displace incumbents with its platform breadth, including advanced detection and remediation capabilities.
The SunTrust analysts remain very positive on the company and said this:
We believe that CrowdStrike has emerged as a key beneficiary of the remote working paradigm that has accelerated during the COVID-19 Crisis. Our conversations with customers over the last few weeks lead us to believe that they are benefiting from both new customer growth and upsell within their existing customer base. Our analysis leads us to believe that current ARR expectations are overly conservative and that the Company has a long runway in a favorable competitive environment.
SunTrust raised its $80 price target to $95. The consensus target is $73.32, but CrowdStrike stock rose 3% on Wednesday to close at $80.97.
Mimecast
This is a smaller and perhaps less known company that the SunTrust team is very positive on. Mimecast Ltd. (NASDAQ: MIME) provides cloud security and risk management services for corporate information and email.
The company offers Mimecast Email Security services, including targeted threat protection that extends traditional gateway security to protect organizations against targeted attacks and enables administrators and security specialists to monitor and report attempted attacks. Its URL Protect tackles threats from emails containing malicious links.
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The company offers the latest capability of its Targeted Threat Protection service, Internal Email Protect, the first-to-market cloud-based security service providing threat capabilities for internally generated email. Internal Email Protect allows customers to detect and remediate security threats that originate from their users’ email accounts.
The SunTrust team is very upbeat on this company and noted this:
Our research suggests notable pick-up in demand activity. As businesses return to some normalcy, email/data protection and broader cyber resiliency initiatives are returning with renewed vigor. We believe Mimecast’s broadening platform is appealing to larger enterprises looking to migrate off legacy platforms. Expanded platform play is driving vendor consolidation opportunities in the mid market. We believe fiscal 2021 estimates are conservative. Renewed demand should lead to upside/improving financial trends.
The $56 SunTrust price target is in line with the $56.05 consensus figure. Mimecast stock closed on Wednesday at $38.95, up over 6% on the day.
Take-Two Interactive
This top video game producer and has cashed in with some super-hot titles. Take-Two Interactive Software Inc. (NASDAQ: TTWO) develops, publishes and markets interactive entertainment solutions for consumers worldwide. The company offers its products under the Rockstar Games and 2K labels, as well as under Private Division and Social Point labels.
Take-Two develops and publishes action/adventure products under the Grand Theft Auto, Max Payne, Midnight Club, and Red Dead Redemption names through developing sequels, and it offers downloadable episodes, content and virtual currency, as well as releasing titles for smartphones and tablets. The company also develops brands in other genres, including the LA Noire, Bully and Manhunt franchises.
In addition, the company publishes various entertainment properties across various platforms and a range of genres, such as shooter, action, role-playing, strategy, sports and family/casual entertainment under the BioShock, Mafia, Sid Meier’s Civilization, XCOM series and Borderlands labels. It publishes sports simulation titles, comprising NBA 2K series, a basketball video game; the WWE 2K professional wrestling series; and the Golf Club. Additionally, the company offers free-to-play mobile games, such as Dragon City and Monster Legends.
Take-Two was down sharply after the close yesterday, after reporting diluted earnings per share of $1.07 on revenue of $760.54 million. These both come in well above Wall Street’s estimates.
The SunTrust price target of $129 is just below the $132.41 consensus estimate. Take-Two stock closed above both levels on Wednesday at $146.84.
Given the big run for TMT stocks off the March lows, it makes sense for investors to scale capital into these top stocks. The economic numbers for the second quarter are going to be dreadful, but with the gradual reopening of businesses and the country, some sense of normalcy should start to return. That should give a more positive tone for the latter half of 2020.
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