As incredible as it may seem, 2021 is here and rolling. The holidays are over, and everybody has returned to Wall Street for what could be a very different year for investors, compared with the roller-coaster ride we took last year. Interest rates are expected to stay at generational lows, and with more stimulus headed out from Washington, D.C., that may help backstop struggling U.S. businesses and consumers.
In a new research report, Baird is out with its top picks for 2021 As the analysts unveil the highest conviction ideas, we continue to remind our readers that the markets are very extended and overbought now. While the analysts generally take the longer term view on a stock, the near term could be choppy.
We screened the top technology picks at Baird for 2021 and found five that look like outstanding ideas for growth stock investors with a somewhat higher risk tolerance level. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Autodesk
This has remained a favorite at Baird for years, and it still has solid upside to the firm’s price target. Autodesk Inc. (NASDAQ: ADSK | ADSK Price Prediction) is a design software and services company providing a range of solutions for customers in architectural, engineering, construction, manufacturing, geospatial mapping and digital media markets.
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The company offers AutoCAD, a professional design, drafting, detailing and visualization software. AutoCAD Civil 3D is a surveying, design, analysis and documentation solution for civil engineering, including land development, transportation and environmental projects. AutoCAD LT is drafting and detailing software. BIM 360 is construction management cloud-based software.
Autodesk also offers computer-aided manufacturing (CAM) software for computer numerical control machining, inspection and modeling for manufacturing. Its Fusion 360 is a 3D CAD, CAM and computer-aided engineering tool, and its Industry Collections software products are for professionals in architecture, engineering and construction, product design and manufacturing, and media and entertainment industries.
The analysts said this in the report:
Autodesk is an idea we continue to like for 2021+ as the company executes on several cyclical/secular growth opportunities in AEC and manufacturing, reaccelerating revenue growth in the process. Autodesk customers are becoming more comfortable with the prospect of incremental investments following election/vaccine outcomes; within Autodesk’s own performance, this should manifest in steady bookings improvement throughout the year.
The Baird price target for the shares is $342, and the Wall Street consensus target is lower at $295.53. Autodesk stock closed trading on Tuesday at $301.70 a share.
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Qualcomm
This stock has made solid moves off last year’s lows but looks poised to go even higher in this 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:
Qualcomm is at the center of the unfolding 5G secular cycle. Key drivers for the stock in 2021 include an expected >2x year-over year growth in 5G phone units, expected market share gains in China given the Huawei backdrop, along with expansion of 5G use cases beyond smartphones to multiple end markets. RF represents a significant incremental revenue opportunity, characterized by high ASPs, ever-growing content, and market share gains. Qualcomm’s RF technology has now found significant traction at the two key smartphone OEMs, along at other OEMs.
Shareholders receive a 1.71% dividend. Baird has a price target of $200, well above the posted consensus target of $164.56. Qualcomm stock closed Tuesday’s trading at $152.43.
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RingCentral
Some feel this smaller cap company could be a great takeover target. 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.
Despite a big move higher, the analysts remain bullish:
RingCentral has separated itself as the leader in the UCaaS market, competing in a $50+ billion global total addressable market that is only ~10% penetrated. It has consistently grown revenue over 30% while generating healthy and growing margins. The pandemic has likely accelerated the decision to move from on premise to cloud for many businesses, including large enterprises that typically take longer to transition. While competition has increased, particularly from Microsoft and Zoom, RingCentral has put in place a robust distribution network that positions it well to capitalize on the rapid shift to cloud.
The $440 Baird price target compares with a $364.74 consensus target. RingCentral stock closed Tuesday at $383.63 per share.
Skyworks Solutions
Baird analysts favor this stock as they see it as a smartphone content and infrastructure provider as well. Skyworks Solutions Inc. (NASDAQ: SWKS) designs, develops, manufactures and markets proprietary semiconductor products, including intellectual property worldwide.
The company’s product portfolio includes amplifiers, antenna tuners, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase-locked loops, phase shifters, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage-controlled oscillators/synthesizers and voltage regulators, as well as wireless radio integrated circuits.
Skyworks provides its products for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets.
Baird said this about the prospects for 2021:
Skyworks remains a core holding on the 5G secular growth theme. In mobile, we expect 5G smartphone units to more than double in 2021 along with ongoing content increases. Additionally, C band represents an incremental RF content opportunity in 5G phones for 2021. We also expect Skyworks to benefit from Huawei’s share losses via a stronger incumbent position at other smartphone OEMs including Samsung. Besides smartphones, broad markets should experience a very strong reacceleration next year as 5G use cases expand into a variety of applications such as industrial IoT and automotive.
Skyworks Solutions stock investors receive a 1.26% dividend. Baird has set a $180 price target. The consensus target is $161.04, and the last trade for Tuesday was reported at $156.30.
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Twilio
This may be the top stock to own in this fast-growing segment. Twilio Inc. (NYSE: TWLO) provides cloud communications platform that enables developers to build, scale and operate communications within software applications through the cloud as a pay-as-you-go service in the United States and internationally.
The company offers programmable communications cloud software that enables developers to embed voice, messaging, video and authentication capabilities into their applications through application programming interfaces. The company also provides use case products, such as a two-factor authentication solution.
Last year proved solid for Twilio, and the analysts said this:
Because of the broad diversification across industry and product, its exposure to impacted industries turned out to be far less than anticipated and the benefits from other industries more meaningful. Digital transformation has significantly accelerated, and companies now more than ever need to invest in digital customer engagement. Twilio has established itself as the undisputed leader in communication APIs, with a widening geographic, product and developer moat.
The Baird price objective is $425. The consensus price target is lower at $376.59. Twilio stock closed at $341.24 on Tuesday.
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Baird seems to have purposely distanced the top picks from the high-profile social media stocks and other meg-cap giants, and with good reason. Many of them are coming under close scrutiny in Washington, D.C., for a variety of reasons. While all these ideas are very aggressive, they should avoid some of the pitfalls that could face other tech giants in 2021. With that noted, in front of upcoming earnings, it may make sense to scale into positions.
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