Merrill Lynch Says Buy Technology for 2018: 5 Top Picks
Any way you look at it, the market is expensive. When you add in the fact that we have gone 375 trading days without a 5% correction, which is the second longest stretch since 1928, we are certainly in uncharted waters. Then, just to spice things up, also add in the fact that a 5% correction happens on average three times per year. With the possibility that 2018 could be the final year of the bull market, the question is what to buy now?
In a new and lengthy year-end report from Savita Subramanian and her outstanding team at Merrill Lynch, while acknowledging the nosebleed levels of the market, with the S&P 500 forward price to earnings of a rich 18 times, they also say that missing out on the final run of a bull market can be a losing hand. The analysts also maintain that in the late stages of a bull market momentum are the place to be, and for 2018 momentum equals technology stocks.
With that in mind, we screened the Merrill Lynch technology research universe for stocks that are rated Buy and look to have solid upside potential for 2018. We found five that may make outstanding plays.
This leader in semiconductors is working hard to scale away from dependence on personal computers, and the Internet of Things and data center cloud spending are 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.
Intel’s data-centric businesses now account for about 45% of revenues, versus 40% three years ago, with its Data Center Group poised to grow by high-single-digit percentage points over the next few years. In addition, many feel that Intel’s cloud hyperscale customers will continue to spend aggressively on cloud computing infrastructure over the next few years. This growing silo of business combined with the company’s legacy products makes it a solid and reasonable stock to own for 2018.
Intel investors receive a 2.33% dividend. The Merrill Lynch price target for the shares is $49 and should be lifted higher soon. The Wall Street consensus price objective is $46.84. The shares traded early Friday at $46.40 apiece.
Micron Technology Inc. (NASDAQ: MU) is a global leader in advanced semiconductor systems, and hedge fund manager David Einhorn from Greenlight Capital has been buying the shares recently. Micron’s broad portfolio of high-performance memory technologies, including DRAM, NAND and NOR flash, is the basis for solid state drives, modules, multichip packages and other system solutions. Its memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.
Micron and Intel announced last year the availability of their 3D NAND technology, the world’s highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers and nearly every cell phone, tablet and mobile device.
The company posted outstanding quarterly earnings recently and also provided forward guidance that exceeded Wall Street estimates. With memory demand drivers remaining somewhat underappreciated and with solid demand from end-markets such as data center, artificial intelligence (AI), deep learning, big data, mobile and autonomous driving, Micron continues to execute well on its manufacturing road map. The analysts expect the company to drive gross and operating margins higher in 2018, even if prices return to more typical deflationary environment.
The new Merrill Lynch price target is $60. The consensus price target is $58.79, and shares traded at $44.60 Friday morning.