In what can only be described as a good year, the market has had its fits and starts, after being up solidly early in the year and see-sawing this summer. Investors are casting a wary eye toward the fall, and with good reason, as September and October historically have been shaky.
A recent UBS report focuses in on the firm’s Most Preferred Information Technology picks, and many of the stocks that make the list have a cloud presence and offer solid growth going forward. With the IT index far outperforming the S&P 500 this year, it make sense for growth accounts with more risk tolerance to look at adding or initiating positions in shares of the top companies.
This top mega-cap technology stock pick at UBS makes good sense for investors seeking tech exposure. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Wall Street likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.
While Cisco reported fiscal fourth-quarter results that beat or matched most estimates, revenue was down year over year for the seventh consecutive quarter. Despite the decline, Cisco has beaten earnings and sales estimates for every quarter since CEO Chuck Robbins took over from John Chambers two years ago, and most think he has the tech giant headed in the right direction.
Cisco shareholders are paid an outstanding 3.68% dividend. The UBS price objective for the stock is $37, while the Wall Street consensus target price is $35.73. The shares closed on Tuesday at $31.48.
This leader in semiconductors is working hard to scale away from dependence on personal computers, and the Internet of Things is a big part of the shift. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.
The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
Earlier this year, Intel announced the purchase of Mobileye for $15.3 billion. The Israel sensor company gives the chip giant a leg up in the autonomous car competition, and it also adds many other capabilities. This is expected to be a big Internet of Things (IoT) segment going forward.
IoT is so huge that Intel expects the computing total addressable market (TAM) in autos to significantly outpace vehicle unit TAM. In fact, by Intel’s estimates, autonomous cars will demand a 10 times increase in compute throughput, a 1,000 times increase in pixels and 1,000 times increase in storage between 2017 and 2030. In dollar terms, that translates to in-car TAM (systems, data and services) of $70 billion and another $40 billion of TAM for autonomous driving-related data center spending.
Intel investors are paid a solid 3.15% dividend. UBS has a $40 price target, and the consensus price objective is $39.81. The stock closed Tuesday at $34.73 a share.