With a stock market this expensive, investors that want to stay in the game are very smart to stick with the companies that are reporting good earnings and also giving solid forward guidance. In the late innings of a tired bull market, it just makes sense to stick with winners. When the inevitable sell-off comes, you can be sure that the weaker hands at the table will get sold the hardest.
In a series of new reports, Merrill Lynch has raised price targets on four companies rated Buy that have posted some outstanding numbers. All these stocks are a good fit for growth-oriented portfolios that have a higher degree of risk tolerance.
This stock is still trading way below levels printed in the summer of 2015. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
The company recently introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time consuming.
The company posted solid earnings that beat expectations, and the analysts also feel that the Linear Technology acquisition will close by the end of the second quarter, at the latest. They do note that the relationship with Apple and the inherent volatility remains a risk, but Linear will increase exposure to accelerating core auto, industrial and commercial markets.
Shareholders receive a 2.2% dividend. Merrill Lynch raised its price target to $90 from $85. The Wall Street consensus target is $80.42. Shares closed Thursday at $81.97.
This semiconductor capital equipment leader has moved up nicely over the past year. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.
The analysts are very positive on the stock and see Applied Materials benefiting not only the semiconductor side of the business, but also from larger, higher resolution and flexible screens on the display side of the business. The stock may still be one of the best technology values available for investors today. Some Wall Street analysts see continued FinFET capacity expansion (10nm/14nm/16nm) and transition to 3D NAND, with DRAM spending remaining strong this year.
The research report noted:
The company reported strong results and guidance higher than consensus. A beat and raise was expected. Semiconductor and Display markets are strong. Maintain our 5 reasons to own the shares: semiconductor capital equipment strength, OLED, Investments from China, Valuation, and $4 in earnings-per-share in 2 years.
Applied Materials investors receive a 1.15% dividend. The $40 Merrill Lynch price target was raised to $45. The consensus price target is $38.23, and shares closed Thursday at $35.18.
Merrill Lynch raised this long-time Wall Street favorite to a Buy rating. Cavium Inc. (NASDAQ: CAVM) designs, develops and markets semiconductor processors for intelligent and secure networks in the United States and internationally. It offers integrated semiconductor processors for wired and wireless networking, communications, storage, cloud, wireless, security, video and connected home and office applications. The company’s products also include a suite of embedded security protocols that enable unified threat management, secure connectivity, network perimeter protection and deep packet inspection.
Arista networks recently announced a new programmable switch, the 7160 Series, which uses the new XPliant XP80 chipset from Cavium. Cavium purchased Xpliant in 2014, and the purchase has paid off handsomely.
The Merrill Lynch price target was raised to a Wall Street high of $85. The consensus target is $72.38, and shares closed on Thursday at $66.53.
This semiconductor design stock is another Wall Street favorite that floats a little more off the radar. Synopsys Inc. (NASDAQ: SNPS) is the largest provider of electronic design automation (EDA) software used to design, verify and layout semiconductor chips and electrical systems. It represents roughly 28% of the $5 billion EDA market and is the market leader in digital synthesis (Galaxy product), as well as the largest EDA provider of intellectual property for common interconnects like USB. Synopsys is also making in-roads into the analog space with the launch of its Galaxy Designer product.
The analyst’s report noted:
Synopsys reported strong results and guidance, and raised the fiscal year outlook as well. EDA fundamentals and diversifying into software, etc. are helping the company. We reiterate our Buy rating and raise the price objective.
The Merrill Lynch price target rose from $70 to $80, while the consensus target is listed at $66.22. The shares closed Thursday up a big 6.6% on the day at $70.66.
These four companies seem to be hitting on all cylinders, and again the only fly in the ointment is that the market as a whole is overbought and expensive. It makes sense to scale buy shares, perhaps over a three-month period, to avoid buying the entire position at the top.