Telecom Services Stocks Among Analyst’s Best Q4 Tech Ideas

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With third-quarter earnings out of the way, and the final six weeks of the trading year upon us, investors are looking to reset portfolios for what typically is a strong time of year for the markets. One smart plan is to take some profits and weed out some losers now, providing fresh capital for the sprint to 2015. One area that has underperformed, but has stocks with tremendous fundamentals, is telecom services. A new report from Cowen focuses on some of the best tech ideas within the sector.

With huge demand for storage and latency still continuing to surge, the Cowen team has focused on the top stocks that are continuing to post solid numbers and are on an upward growth trajectory. We screened the list of stocks to buy and found three of the top picks, and a fourth company that may have set the table for a big fourth quarter and 2015.

Akamai Technologies Inc. (NASDAQ: AKAM) had a solid third-quarter results, including revenue and EBITDA that beat Wall Street expectations. Revenue upside came from its media business, which saw strong growth within social media, gaming and video delivery. Akamai has reiterated that the Prolexic acquisition, although very different but adjacent to its Kona suite, could look at additional network-based security capabilities to address the area between the application and end user: technologies that cover DDoS appliances, app changes, identity management and analytics. Combined with the company’s huge server business, this could make it a top stock for investors for the rest of the year and beyond.

The Cowen price target is $68. The Thomson/First Call consensus price target is $68.47. Akamai closed Thursday at $60.45.

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Cogent Communications Group Inc. (NASDAQ: CCOI) is one of the three Cowen Best Ideas going forward. The company is a key provider of Netflix’s Tier 1 services and looks to immediately be a winner. Internet service providers (ISPs) like Comcast will allow transit providers like Cogent to connect to their network for free, in what’s called settlement-free peering. Once the transit provider sends more traffic to the ISP, then it is allowed to, per the peering policy, and the transit provider pays the ISP for more capacity to get additional traffic into their network. This can result in a tremendous increase in overall business.

Investors are paid a very solid 3.6% dividend. The Cowen price target is $47, and the consensus estimate is much lower at $38.33. Cogent closed Thursday at $35.56.

Level 3 Communications Inc. (NASDAQ: LVLT) also makes the Cowen Best Ideas list. The company provides local, national and global communications services to enterprise, government and carrier customers. Level 3’s comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions, IP-based voice and data communications, wide-area Ethernet services, video and content distribution, and data-center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities.

The Cowen price target is $58, and the consensus target is at $52.75. Level 3 closed Thursday at $48.64 a share.

Rackspace Hosting Inc. (NYSE: RAX) posted very good third-quarter numbers and won a record number of new deals in the period. Rackspace also announced that it was updating and modernizing its relationship with Microsoft and now offers support for Microsoft’s private cloud offering, along with added support for Google Apps. The company caught Wall Street’s attention back in the spring when it said it was looking at strategic alternatives, which could mean a buyout or merger. At this point, with no suitors lining up, the company has continued to increase the focus on product development. However, Blue Harbor group continues to add to its holdings in the stock, the position now accounts for 4.60% of the fund’s total portfolio, and other hedge funds have shown interest in the cloud hosting company.

The Cowen price target for this third Best Idea stock stands at $65, while the consensus target is lower at $45.11. Shares closed trading on Thursday at $43.33.

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The demand for fiber, storage, delivery and latency is only going to increase. With Google making a huge push into programming and the ISP world with its Google Fiber, plus major carriers increasing Internet speeds, the need for speed will only increase. Cowen’s top stocks to buy should be right there when more orders continue to roll in.