Dollars Flooding Into Technology: 4 Stocks Still Very Reasonable

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Microsoft

This top old-school technology stock has posted all-time highs this year and has a massive $121.79 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.

Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. Analysts also maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users.

The company released huge third-quarter results and the analysts noted:

Microsoft reported a very strong fiscal first quarter, beat gross margins by 2% due to commercial cloud gross margins +8% – as we previewed. Reiterate our Buy rating and increase the price objective. Multiple positive vectors – windows accelerating, commercial cloud annualized revenue run rate accelerating – key drivers for growth/margin inflection. Our new 10 year discounted cash flow analysis values the company at still only 22 times current year 2018 free cash flow and still below comps at 26 times.

Microsoft shareholders receive a 2.0% dividend. The $83 Merrill Lynch price target was raised to $98, while the consensus price objective is $87.57. The shares closed last Friday at $83.87.

Western Digital

This long-time innovator in the storage industry is a leader in the total addressable HDD market. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.

The company is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.

The stock also dipped after earnings, and Merrill Lynch noted at the time:

Western Digital stock traded down after earnings despite above Wall Street earnings per share guide for the fourth quarter and fiscal 2018, as investors concerned on peak margins. NAND supply-demand will not come into balance until mid-calendar 2018 and the company has plenty of room to meet its $13 fiscal 2018 earnings-per-share guide. Management reiterated belief that Toshiba cannot sell JV share without their consent. Western Digital expects to have NAND supply through 2029.

Shareholders receive a 2.25% dividend. Merrill Lynch has a $120 price target, and the consensus target is $113.81. The stock closed on Friday at $88.92.

Four top tech stocks to buy run the gamut from more conservative to a higher risk scenario. All have decent upside potential to the analyst’s price targets, and all are well situated in their silos of the tech sector.