One thing is for sure, after years of paying higher multiples for momentum stocks, many Wall Street firms that we cover are eyeing solid growth, reasonable multiples and good dividends. One sector that can supply all of those may surprise investors, and it’s technology. That also happens to be a sector many firms are overweight allocation-wise for the rest of this year and 2016.
We screened the Merrill Lynch research universe for technology companies that trade with a reasonable multiple; pay dividends higher than the 30-year U.S. Treasury bond, which is currently at a 2.87% yield; and are rated Buy rated. We found four that fit the bill, that could also help spark a solid year-end rally in aggressive growth portfolios.
This is one of the top mega-cap technology stock picks on Wall Street and perhaps a surprising defensive pick for volatile markets like we have witnessed. Cisco Systems Inc. (NASDAQ: CSCO) posted outstanding earnings in August, and many on Wall Street have raised their price targets for the networking giant significantly higher. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.
Earlier this year Cisco won an important contract for the Verizon build-out of the company’s next-generation 100G metro network. While Cisco’s optical business is small as a part of total revenue, this win is seen by Wall Street as a significant endorsement of the investments Cisco has made into its optics business.
Analysts across Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Many think that 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.
Cisco investors are paid a very solid 3% dividend. The Merrill Lynch price target for the stock is $30, and the Thomson/First Call consensus target is $31.11. Shares closed Thursday at $28.15.