Technology

Technology Momentum Giants Highlight Jefferies Top Stocks to Buy This Week

Lee Jackson

Published: June 16, 2020 7:07 am

Last Updated: June 16, 2020 8:38 am

The companies that we cover on Wall Street increasingly are starting to agree that while the future’s still bright for the U.S. economy, despite the potential for COVID-19 spikes, it may be one of stock market gains that are much lower than the norm has been 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 second-quarter trends and activity, 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. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Amazon

This company is the absolute leader in online shopping. 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. It has one of the most valuable brands in the world.

The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. 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 is also rolling out its checkout-free Go technology in a large grocery store and plans to license the cashierless system to other retailers. Amazon Go Grocery opened in Seattle last month. It uses an array of cameras, shelf sensors and software to allow shoppers to pick up items as varied as organic produce and wine and walk out without stopping to pay or scan merchandise. Accounts are automatically charged through a smartphone app once shoppers leave the store.

Jefferies has remained bullish on the shares for years and noted this in the recent report:

We were out with an update on the e-commerce space, broadly raising our estimates. While e-comm stocks have outperformed YTD, as they benefit from a step-change in online consumption, we increased our 2020 estimate for the US. e-comm industry growth from 13% to 20%, the highest level since 2007. While there is concern the boost is temporary, our survey shows 63% of consumers plan to permanently spend more online after the pandemic ends. We see incremental essential sales increasing engagement and frequency in other categories, allowing Amazon to capture more share of wallet. It remains our top pick.

The Jefferies target price is a whopping $3,100, and the Wall Street consensus target is $2,724.29. Amazon.com stock closed Monday at $2,572.68 a share.

NXP Semiconductors

This is still considered a top play for investors looking for a chip stock with Internet of Things exposure. NXP Semiconductors N.V. (NASDAQ: NXPI) became the fourth largest semiconductor company in the industry after it merged with Freescale in late 2015. It is also important to note that the combined company is the number one supplier in auto semiconductors with a 14% share, as well as the number one supplier in global microcontrollers and a dominant supplier in mobile payments.

NXP continues getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile phone charging, increased cellular data consumption and even LED lighting. With shares trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition. Jefferies agrees and notes this:

We revisited our prior work on semis, and we continue to expect WFH and Analog/MCU plays in semis will mean revert. While we have already begun to see this start, we highlight Auto-semi plays in particular, as US auto inventories have declined 28% from peak levels in March and forecasts from the group appear to be 6-36% below the longer term trendline in the second quarter to the fourth quarter of 2020. In addition, we point out that COVID-19 may ultimately add additional car demand,

Jefferies has a $127 price target, greater than the $117.55 consensus target. NXP Semiconductor stock closed Monday’s trading at $109.46.

This smaller cap company could be a great takeover target, and it is a member of the Jefferies Franchise Picks list. RingCentral Inc. (NYSE: RNG) offers a cloud-based solution for business communications that replaces legacy and expensive on-premise communications systems. It is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, text, fax, audio conferencing and integration with document and customer relationship management systems.

For some time, Jefferies has believed the company has multiple catalysts, including continued traction with mid/enterprise customers, increased partner traction, international expansion and continued dislocation in the industry from legacy PBX/UC vendors.

Last year, Avaya entered into a strategic partnership with RingCentral in which it will introduce a new unified communications as a service (UCaaS) solution. Under the agreement, RingCentral will contribute $500 million to the deal and will be Avaya’s exclusive provider of UCaaS solutions.

Jefferies feels the potential for growth is high:

We hosted virtual meetings with management and came away incrementally positive. Unsurprisingly, the Avaya partnership was a focus, and management highlighted that the ramp is going as expected, and the product is gaining traction with channel partners and end customers. The company maintained its prior view that Avaya Cloud Office will have a much more meaningful financial impact in 2021 given the ramp and lag time between deal closings and go-lives. In addition, mgmt. reiterated that the company remains well positioned for an increasingly mobile/distributed workforce, and we continue to see the Work From Home shift as a tailwind for the company. As for competitive threats, we believe that Ring Central’s tech and relationships are substantial, but also highlight that the total addressable market of ~400 million seats should leave room for multiple winners. Our 2021 revenue estimate is ahead of consensus.

Jefferies recently raised its price target to $290 from $245. The consensus target is $277.14, and RingCentral stock closed at $270.25 on Monday.

ServiceNow

This stock had an incredible 2019 and remains a top pick. ServiceNow Inc. (NYSE: NOW) develops and sells a hosted, subscription-based suite of services designed to automate various IT department functions, such as help desk, operations management and change/release management.

The company also sells a number of applications that automate various self-service related applications outside of the IT department, such as HR onboarding, facilities requests and governance, risk and compliance.

ServiceNow has consistently posted strong quarterly results and the analysts feel good about where the company is headed for the rest of 2020, they said this in the research.

We recently spoke with a couple of ServiceNow-related industry contacts to gauge the demand environment. Overall, our checks indicated that while new bookings slowed early during the crisis, the brunt of deal and implementation delays were felt in April and early May with improvement beginning in mid-May. In addition, our conversations suggest a further pickup is expected in June and 2H. One of our contacts noted that a majority of new deals are on the smaller side, and primarily from existing customers as work from home appears to create additional demand for automation. In addition, as it relates to the Federal business, we were told that NOW’s FedRAMP High and DOD IL4 certifications received in the second half of 2019 are driving broader interest from more agencies.

The $375 Jefferies price objective compares with the $370.23 consensus price target. ServiceNow stock closed well above both levels on Monday at $392.50.

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