What a remarkable start to 2017, the Nasdaq is up as much in 2017 as it was all last year, and we are barely six weeks into the new trading year. One thing is for sure, investors looking to stay with growth stocks are going to need to be very careful about stock selection, as the sky-high prices of some companies are stretching valuations.
One good portfolio to look to for ideas is UBS Quality Growth at a Reasonable Price (Q-GARP) stocks. Growth stocks lost the race last year to value, but have headed out of the gate this year in solid fashion. The Q-GARP portfolio consistently has outperformed the S&P 500 since inception in 2007, and it offers investors an outstanding portfolio using an initial quantitative screen of stocks based on the following:
- Quality metrics: high and stable profitability
- Growth: high expected earnings growth
- Valuation: low valuation relative to peers
The final list is a compilation of quality growth stocks that the UBS team believes are trading at attractive valuations. The portfolio is already ahead of the S&P 500 on a total-return basis, we screened the list for the top technology stocks and found four that still look like solid buys.
This high-profile old-school software company has been posting outstanding earnings. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content.
The Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured and optimized. This segment provides analytics, social marketing, targeting, media optimization, digital experience management and cross-channel campaign management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers and chief revenue officers.
The Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development and high-end printing, as well as publishing needs of technical and business and original equipment manufacturers (OEMs) printing businesses.
The company believes there are an additional 11.7 million potential users driven by growth in the creative community, student and teacher penetration and conversions from the piracy. Market and value expansion provide additional upside. Adobe is also reasonably safe route for investors looking to own a company with marketing automation product, which has become huge.
The UBS price target for the stock is $134, and the Wall Street consensus price target is $123.96 Shares closed on Tuesday at $117.58.
The search giant continues to expand, and it is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) provides online advertising services in the United States, the United Kingdom and rest of the world. It offers performance and brand advertising services, and it operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The Google segment also sells hardware products, comprising Chromecast, Chromebooks and Nexus. The Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X and other initiatives.
Alphabet’s stock sank after the company reported earnings in late January that missed Wall Street’s consensus estimate. Google’s mobile search and video ads boosted revenue in the fourth quarter, but increased spending in hardware and other new businesses, as well as a larger-than-expected tax rate, weighted on the bottom line. Shares have since rallied back nicely.
Alphabet is ranked as a most preferred stock at UBS, but the price target was not available. The consensus target is $990.72, and shares closed Tuesday at $840.03.