UBS Makes Big Change to Quality at a Reasonable Price Portfolio

With the summer winding down and the traditionally slow pre-Labor day lull in place, we are reviewing some of the top portfolios we follow on Wall Street for tactical changes being made to reset for the fall. Almost all the top firms we cover are tweaking portfolios for clients, and some are taking profits on stocks that have run this year.

The UBS Quality Growth at a Reasonable Price (Q-GARP) portfolio has consistently outperformed the S&P 500 since inception in 2007, and it offers investors an outstanding portfolio using an initial quantitative screen of stocks based on: 1) quality metrics—high and stable profitability, 2) growth—high expected earnings growth, and 3) valuation— low valuation relative to peers. The final list is a compilation of quality growth stocks that the firm believes are trading at attractive valuations.

The UBS portfolio team removed a big tech stock from the portfolio, and we here also look at the top technology stocks that remain.

Cognizant Technology

This top stock is removed from the portfolio and also taken off the UBS Most Preferred List. Cognizant Technology Solutions Corp. (NASDAQ: CTSH) provides information technology (IT), consulting and business process services worldwide. Its services include IT strategy consulting, program management consulting, operations improvement consulting, strategy consulting and business consulting services, as well as application design and development, systems integration, enterprise resource planning and customer relationship management implementation services.

The UBS team is worried about competition and sector issues in the company’s space, and said this in its report:

In our view, the short- and longer-term growth outlook for Cognizant is becoming less certain. Companies in the financial services industry account for 40% of Cognizant revenues. Unfortunately, this industry is contending with a number of issues that are hurting sector profitability, such as low (and in many cases negative) interest rates and sluggish client activity.

The Wall Street consensus price target for the stock is $67.88. Shares closed Wednesday at $57.44.

Adobe Systems

This high-profile old-school software company has been posting outstanding earnings. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content.

The Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured and optimized. This segment provides analytics, social marketing, targeting, media optimization, digital experience management and cross-channel campaign management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers and chief revenue officers.

The Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development and high-end printing, as well as publishing needs of technical and business and original equipment manufacturers (OEMs) printing businesses.

Adobe is also reasonably safe route for investors looking to own a company with Marketing Automation product, which has become huge.

The UBS price target is $122, and the target is $112.46 Shares closed on Wednesday at $102.31.