Red-Hot Technology Companies Added to Stifel's Select List Portfolio

Technology

Published: August 24, 2017 9:10 am

Last Updated: January 12, 2020 8:50 am

With the earnings for the second quarter now almost completely over, the top firms we cover on Wall Street are getting a look at how things are shaping up for the third quarter and the rest of 2017. One thing seems obvious, many of the top firms still favor the top-performing tech stocks, and the team at Stifel is no exception.

A new research report from the firm reveals some big changes to Stifel’s Select List portfolio, which is a collection of the highest conviction stock selections from the analysts. They added six new companies and three are very hot technology stocks. We also cover two additional companies that look like solid plays now.

Adobe Systems

This high-profile, old-school software company is added to the list and has posted 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 other segments are Digital Marketing and Print and Publishing.

Top analysts feel there are an additional 11.7 million potential users, driven by growth in the creative community, student and teacher penetration and conversions from the piracy. Market and value expansion provide additional upside. The company posted outstanding second-quarter numbers and the rest of the year looks very solid,

Adobe is also reasonably safe route for investors looking to own a company with a marketing automation product, which has become huge. Adobe has a partnership with Microsoft as well.

Stifel raised its price target on the stock to $163 from $150. The Wall Street consensus target was last seen at $159.06, and the shares closed on Wednesday at $151.10.

Alibaba

Almost three years ago, this company was the hottest thing on the planet and getting ready to come public. Alibaba Group Holding Ltd. (NYSE: BABA) runs the largest retail marketplaces (Taobao, TMall) and leading B2B sites (Alibaba.com, 1688.com) in China and Lazada in Southeast Asia. It collects revenues mainly from commissions, marketing services, subscription fees, cloud computing and software, as well as other value-added services. It also owns media and partners with logistics and payment companies to offer delivery, warehousing, payment and financing services for its market participants.

Plain and simple, the dominance in Alibaba’s core business, the very hard barrier to entry for competition and new growth opportunities like cross-border e-commerce make the stock extremely attractive. With most of the damage to the China equity markets seemingly subsided for now, the residual effect to the company may subside some.

The company recently reported huge quarterly numbers, and the driving force for some of the outperformance included social features, customized mobile app for users, cross-platform user tracking and ad targeting for merchants. In fact, growth returned to the levels the company was at when it went public.

Stifel has set its price target at $190, which is essentially in line with the consensus estimate of $190.68. The stock closed Wednesday at $175.80 a share.

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Ciena

This company has had a very up and down 52 weeks and has frequently been the subject of takeover rumors. Yet it is a new top pick at Stifel.

Ciena Corp. (NASDAQ: CIEN) is a vendor for high-capacity optical transport and Ethernet switching equipment to carriers, enterprises, cable operators and governments. It specializes in transitioning legacy communications networks to converged, next-generation architectures capable of efficiently delivering a broader mix of high bandwidth services.

The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN configuration for the 5410 Reconfigurable Switching System.

Ciena remains a top pick due to an expected multiyear ramp in 100G optical spending, which should continue to accelerate in 2017. The analysts note in the report that Ciena’s Waveserver and Data Center Interconnect revenues are estimated to represent low single-digits and 5% to 10% of total revenue. Many also see good traction on major deals like Jio in India that should act as a tailwind in 2017 and beyond.

The $32 Stifel price target compares with a posted consensus target of $30.77. The shares closed Wednesday at $23.95 apiece.

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Vantiv

This company has a solid following on Wall Street and has been on a roll this month. Vantiv Inc. (NASDAQ: VNTV) is a payment processor. Its segments include Merchant Services and Financial Institution Services. The company offers a range of payment processing services that enable its clients to meet their payment processing needs through a single provider.

Vantiv’s products enables merchants to accept and process credit, debit and prepaid payments, and they provide them supporting value-added services, such as security solutions and fraud management, information solutions and interchange management. It also provides payment services to financial institutions, such as card issuer processing, payment network processing, fraud protection, card production, prepaid program management, automated teller machine (ATM) driving and network gateway and switching services that utilize the company’s Jeanie personal identification number (PIN) debit payment network.

The Stifel price objective is $85. The consensus price target is $75.71, and the shares closed most recently at $72.38.

Willis Towers Watson

This top European stock also was added to the Select List portfolio. Willis Towers Watson PLC (NASDAQ: WLTW) is the world’s third-largest insurance broker, and it operates as a holding company for a group of companies that provide risk management consulting and insurance brokerage services. The company acts as an intermediary between clients and insurance carriers.

The merger with Towers Watson added a global human resources consulting firm with over 14,500 consultants in the areas of retirement benefits, health care, investment management, risk management, communications and executive compensation.

While the company reported a slight second-quarter miss due to higher expenses, overall operating results were solid, and most on Wall Street expect steady growth going forward.

Shareholders are paid a 1.43% dividend. The $175 Stifel price objective compares with the consensus price target of $161.82. The shares closed most recently at $148.39.

Five very good picks for long-term growth portfolios. Given the current altitude of the markets, it may make sense to buy partial positions now and see how the often dangerous month of September plays out.