Technology

Analyst Loves 3 Top Tech Stocks to Buy Before Q1 Earnings

Lee Jackson
Western Digital

This long-time innovator in the storage industry is a leader in the total addressable hard disk drive (HDD) market, and it posted a very positive earnings pre-announcement earlier this week. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.

Western Digital is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.

The most compelling news for 2017 and beyond is that the company made a stunning $19 billion purchase of SanDisk last year. This could be a strong addition to Western Digital’s current offerings, and the company could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.

RBC sees the secular growth in storage as a big positive, and Western Digital predicts a fourfold increase between 2016 and 2020. Three big areas should also pay off handsomely:

1) Data Center capacity is expected to increase at a 40% compounded-annual-growth rate between 2015 and 2020.
2) The company’s Data Center Solutions is expected to drive all-incremental revenue growth in the coming years.
3) Capacity HDD’s are expected to continue growing and should be four to five times more cost effective due to NAND by 2020.

Western Digital shareholders are paid a solid 2.38% dividend. RBC has a $96 price target, and the posted consensus price objective is $93.37. The stock closed most recently at $84.16 per share.

Arris International

This stock has been an RBC favorite for some time and is the top small cap pick. Arris International PLC (NASDAQ: ARRS) provides media entertainment and data communications solutions in the United States and internationally. It operates through two segments. The Customer Premises Equipment segment offers various product solutions, including set-top boxes, gateways, digital subscriber lines and cable modems, and embedded multimedia terminal adapters and voice/data modems that enable service providers to offer voice, video and high-speed data services to residential and business subscribers.

The Network & Cloud segment provides cable modem termination system, converged cable access platform, multichannel video programming distributors, programmer equipment, ad insertion technologies and equipment in the ground or on transmission poles, as well as equipment used to initiate the distribution of content-carrying signals.

While some of the Wall Street concern over the set-top box arena is valid, the company still holds a 27% to 30% market share, and many analysts feel that it will be years before demand slows. Trading at a low nine times estimated 2018 earnings, the stock is cheap at current levels, and if the company guidance stays in line with current forward estimates, the analysts feel confidence could begin to return.

The $33 RBC price target is about the same as the consensus target of $33.13. Shares closed most recently at $26.20 apiece.

These three stocks are very solid picks in a market that is pretty rich. Investors may want to buy partial positions and see how actual results come in.