Technology

4 RBC Mobile and Cloud Networking Stocks to Buy Before Earnings

Cisco

This is one the top mega-cap technology stock picks at RBC. Cisco Systems Inc. (NASDAQ: CSCO) is trading at a low 12.4 estimated 2015 earnings and boasts an outstanding 7.4% free cash flow yield. The networking giant also seems to have fought through numerous headwinds, including up and down demand from telecom carriers, weakness in emerging markets and threats to its very lucrative switching business. Analysts feel all these are going away. The company also stands to benefit from a better corporate spending environment in Europe, as well as continued growth here at home.

Many on Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate. A jump from 40 GE to 100 GE data center switching and next generation security are also adding to the total sales profile and product mix.

The RBC team feels that Cisco may announce operating expense cuts and perhaps a round of layoffs. With $52 billion of cash stashed overseas, the company is more than capitalized to grow through mergers and acquisitions.

Cisco investors are paid a very solid 3.02% dividend. The RBC price target is posted at $33, and the consensus target is $31.45. Shares closed Monday at $27.79.

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Fitbit

This company had one of the hottest initial public offerings of this year, and the quiet period just ended and Wall Street analysts are very bullish. Fitbit Inc. (NYSE: FIT) is leading a worldwide movement toward healthier, more active lives by empowering people with data, inspiration and guidance to reach their goals. The Fitbit platform combines connected health and fitness devices with software and services, including an online dashboard and mobile apps, data analytics, motivational and social tools, personalized insights and virtual coaching through customized fitness plans and interactive workouts. The platform helps people become more active, exercise more, sleep better, eat smarter and manage their weight. Fitbit appeals to a large, mainstream health and fitness market by addressing these key needs with advanced technology embedded in simple-to-use products and services.

The company has already sold over 20.8 million devices since inception. The RBC analysts are very positive on the stock. They think the connected health/fitness market is in the early growth stages, and the company is rapidly gaining share. The RBC team sees increasing unit and average-selling-price growth with a platform approach. They also believe that a deeper international push, combined with corporate wellness adoption, should help grow revenues an estimated 83% this year and conservatively almost 30% next year.

The RBC price target of $55 is well above the consensus target of $42.25. Note that the stock closed above the consensus level Monday at $43.48.

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Corning

This company was a huge player in the fiber build-outs in the 1990s and may be ready to ramp back up for the new FTTP deployments. Corning Inc. (NYSE: GLW) is one of the world’s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics and optical physics.

Corning’s products enable diverse industries such as consumer electronics, telecommunications, transportation and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks and off-road vehicles.

The RBC analysts think the company could see a display/TV upgrade with the new 4K sets and monitors. They also think that at 12 times earnings, current set level inventories are factored in. The analysts also point out that display is the largest driver of earnings with about 40% of revenues and a giant 60% of profits. With 4K prices starting to drop, this could be a boon for the company. Corning could generate as much $2 billion in free cash flow, with the lion’s share returned to investors through stock buybacks and dividends.

Corning investors are paid a 2.51% dividend. The RBC price target is $26, and the consensus estimate is $23.63. Shares closed Monday at $19.15.

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Not only do these stocks all make good sense for aggressive growth accounts, they are trading at levels that make them much more palatable than momentum stocks. That is something investors need to consider in a very pricey market.