While technology was a very strong sector in the first half of 2017, much of the excitement in the arena is expected in the second half of the year, not the least of which will be the release of the iPhone 8. The problem for many investors, especially those underweight the sector, is that share prices are extended, and with any earnings or guidance shortfalls, the penalties could be steep.
We screened the JPMorgan Analyst Focus List tech stocks for companies that the firm has an Overweight rating on, but classify the choice as a value play. We found five on the list that make good sense for investors wanting to maintain exposure to the ultra-high-growth possibilities in technology, but that offer potentially less volatility and downside.
Apple
This technology giant has pulled back recently and is offering a solid entry point. Apple Inc. (NASDAQ: AAPL) revolutionized personal technology with the introduction of the Macintosh in 1984, and it is among the leaders in the world in innovation with the iPhone, iPad, Mac, Apple Watch and Apple TV.
Apple’s four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services, including the App Store, Apple Music, Apple Pay and iCloud.
JPMorgan thinks the iPhone 8 opportunities are solid, as the firm, like others, feels the product will have significant upgrades. Toss in the easier comparisons and the strong average selling prices, and the new phone is a distinct positive. While the firm does note higher commodity prices are a potential headwind from NAND and DRAM pricing, it sees service growth and acceleration as another distinct positive.
Apple investors receive a 1.75% dividend. The JPMorgan price target for the stock is $165, and the Wall Street consensus target is $158.95. The stock closed trading on Tuesday at $145.53, and the company is scheduled to report earnings on August 1.
KLA-Tencor
This has been a top pick at JPMorgan for some time. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.
It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.
The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.
JPMorgan cites the company’s strong execution, served available market (SAM) expansion and an industry leading financial model. The analyst also sees continued financial outperformance on strong market share and SAM expansion.
Shareholders receive a 2.22% dividend. JPMorgan has a $120 price objective, and the consensus target is much lower at $101.13. The shares closed Tuesday at $96.93.
Synaptics
This company could be a big player in the new iPhone 8. Synaptics Inc. (NASDAQ: SYNA) is a developer and supplier of custom-designed human interface solutions that enable people to interact with a range of mobile computing, communications, entertainment and other electronic devices.
The company focuses on the personal computer ( PC) market, primarily notebook computers, including ultrabooks, the markets for digital lifestyle products, including mobile smartphones and feature phones, the tablet market and other select electronic device markets with its customized human interface solutions.
Synaptics SecurePad is a touchpad that Synaptics has developed that integrates its Natural ID fingerprint sensors right inside the touchpad. This is an outstanding technology for gamers because it can be used easily as a piece of the touchpad and not feel like an auxiliary component of the system.
The $74 JPMorgan price target is compares with the consensus figure of $63.04. The shares closed trading on Tuesday at $52.66 apiece.
Viavi Solutions
This smaller capitalization company has solid upside potential. Viavi Solutions Inc. (NASDAQ: VIAV) is a global provider of network test, monitoring and assurance solutions to communications service providers, enterprises and their ecosystems, supported by a worldwide channel community including Viavi Velocity Solution Partners.
The company delivers end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability. Viavi is also a leader in high performance thin film optical coatings, providing light management solutions to anti-counterfeiting, consumer electronics, automotive, defense and instrumentation markets.
The analysts noted this in a recent report:
We continue to see material upside to Viavi’s earnings from 3D sensing in the new iPhone as well as ongoing restructuring. We also believe accretive consolidation deals are a possibility.
JPMorgan has set its price target at $12.50. The posted consensus target is $11.82. The shares closed Tuesday at $10.81.
VMware
This may still be one of the best stocks to own, especially after getting hammered recently. VMware Inc. (NYSE: VMW) provides virtualization infrastructure solutions in the United States and internationally.
The company’s virtualization infrastructure solutions include a suite of products designed to deliver a software-defined data center run on industry-standard desktop computers and servers, and support a range of operating system and application environments, as well as networking and storage infrastructures. Its solutions enable organizations to aggregate multiple servers, storage infrastructure and networks together into shared pools of capacity.
JPMorgan has confidence in the company’s growth prospects given a series of strong earnings results combining healthy growth in newer initiatives along with better-than-feared declines in its core vSphere business. In addition, other top Wall Street analysts feel it is becoming more apparent that enterprises of all sizes are adopting hybrid clouds at a faster clip than many originally assumed, and JPMorgan believes VMware’s emerging partnership with AWS will help extend the half-life of its massive vSphere installed base.
The JPMorgan price target is $105. The posted consensus target is $103.87, and shares closed on Tuesday at $88.56.
These five well-known technology stocks to buy offer investors a better value proposition and have not been swept up in momentum traders’ wake. For long-term tech investors, they may offer solid upside potential going forward, with less potential downside risk.
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