Change can be good in the financial industry, and last month one of biggest changes on Wall Street in years was pulled off without a hitch when many of the highest profile stocks were moved into a new sector. Under the shakeup of the Global Industry Classification Standard, many top companies were moved out of the technology and consumer discretionary sectors into the new group. This new sector is a revised version of the former telecommunications sector and is now called communications services.
Given the high-profile stocks in the sector, portfolio managers have continued buying the stocks, and in a new research report, Merrill Lynch spotted the huge move and said this:
Our work suggests that Communication Services is not only overweight by large cap active managers (relative weight of 1.29x), but is more crowded than any other sector, and is also near a record overweight versus its history based on our data since 2008.
Merrill Lynch found 12 companies that are the most overweight in portfolios by managers, and we screened that list for companies that are rated Buy. We found five that still make sense in a stock market that is very wobbly now, but they should continue to be leaders for years to come.
The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. 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 company blew out the latest earnings numbers, and with a wide and bountiful silo of products and services, the stock remains almost unchallenged. It should be noted that traffic acquisition cost relief drove 20% gross profit growth, despite heavy cloud infrastructure and YouTube content investment.
At a recent conference, Google outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties, each with at least a billion active users (Android, Search, Chrome, Maps, Play, YouTube and Gmail). Smart shopping campaigns leverage machine learning to make sense of touch points along the consumer purchase path, including better offline attribution capabilities (locally oriented searches up 200% over past two years) and improved purchase conversion rates (20% on average).
Merrill Lynch has set its price target for the stock at $1,390. The Wall Street consensus estimate is $1,386.29, and shares closed at $1,090.74 on Thursday.
This top cable giant has been linked to Verizon in takeover chatter in the past, but that seems unlikely now. Charter Communications Inc. (NASDAQ: CHTR) is a leading broadband communications company and the second-largest cable operator in the United States. It provides a full range of advanced broadband services, including Spectrum TV video entertainment programming, Spectrum Internet access and Spectrum Voice.
Spectrum Business similarly provides scalable, tailored and cost-effective broadband communications solutions to business organizations, such as business-to-business internet access, data networking, business telephone, video and music entertainment services and wireless backhaul.
The company made a huge investment in Time Warner Cable, and Charter is tracking well on its integration, which will enable all of its product offerings, pricing, packaging and service operations to be universal across its footprint. By the end of the year, the company plans to finish converting the remaining analog parts of the cable network to all-digital.
The $425 Merrill Lynch target price is well above the $377.16 consensus target. The shares closed most recently at $301.92.