Technology

Merrill Lynch Has 4 Smaller Cap Tech Stocks With Big Upside Potential

While almost every stock was nailed in the almost two month sell-off that started the year, some of the small and mid-cap software stocks were absolutely eviscerated. With far less liquidity than their larger capitalization counterparts, they were ripe for weak holders and short sellers to rip apart.

A new Merrill Lynch research report focuses on four companies that screen very well on sales leverage, and it also points out that the premium that was once present in the group has for the most part disappeared after the vicious selling. In all, four companies are looking good to the Merrill Lynch team, and all four are rated Buy.

Tableau Software

This was a red-hot stock that took a huge hit when it reported in early February. Tableau Software Inc. (NASDAQ: DATA) provides business analytics software products in the United States, Canada and elsewhere. The company offers Tableau Desktop, a self-service analytics environment that empowers people to access and analyze data independently, and Tableau Server and Tableau Public, a free cloud-based platform for analyzing and sharing public data. The company’s business intelligence platform with data management and scalability has the security to foster the sharing of data.

The company announced last year the launch of its Shanghai operations, Tableau (China), as the company expands in China to better serve customers and partners locally. With 1.3 billion people, a quickly expanding urban economy and exponential rates of Internet and smartphone penetration, China generates an immense amount of data annually. Tableau can help bring that data to life for corporations seeking to assimilate the huge data input.

The company reported inline fourth-quarter results, but it offered up fiscal year 2016 guidance that was way below what Wall Street expected and the stock was destroyed. Despite the poor guidance, many analysts have noted that it hardly changed the fact that the company’s competitive positioning remains very strong in its niche areas.

The Merrill Lynch price target is a strong $90, and the Thomson/First Call consensus figure is set at $67.94. The shares closed Monday at $43.81.


HubSpot

This stock was cut in half earlier this year but has rebounded. HubSpot Inc. (NYSE: HUBS) provides a cloud-based marketing and sales software platform for businesses in the Americas, Europe and the Asia-Pacific. Its software platform includes integrated applications, such as social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics and reporting that enables businesses to attract visitors to their websites, convert visitors into leads and close leads into customers. The company also offers professional and phone and email-based support services.

The company said its revenue last year increased by 57% compared to 2014, and those results came in above expectations. Last year, HubSpot’s net loss was $46 million, only slightly better than 2014’s loss. The analysts attributed much of last year’s loss to ballooning research and development expenses (the company spent $113 million on R&D last year) and sales and marketing expenses.

The Merrill Lynch analysts feel that the premium the company trades at is warranted, given its 2016 revenue estimates and its estimate of 30% plus growth over a longer period.

The $50 Merrill Lynch price target is lower than the consensus target of $52.37. The shares closed most recently at $45.12.

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