Merrill Lynch Makes Huge Semiconductor Addition to US 1 List

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With earnings reporting for the first quarter right around the corner, many top Wall Street firms we follow are making some changes to the lists of their high-conviction stock picks for clients. With the market much more volatile than in years past, it makes sense to examine the lists and make some changes, as the rest of the year could have additional volatility as the economic, political and trade issues could weigh on stocks.

In a new research note, the analysts at Merrill Lynch make a big move by adding Nvidia Corp. (NASDAQ: NVDA) to the US 1 list. The company is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.

Nvidia is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

Merrill Lynch has been bullish on the company for some time and the report noted this:

Adding NVIDIA to US1 list, the recent selloff has enhanced buying opportunity for unique tech franchise with multiple 10 times growth drivers. The stock is sensitive to risk-off in high-growth stocks, but new second half products in gaming, artificial intelligence/data center can catalyze recovery. Overstated noise from crypto mining (offset by gaming strength) and autonomous car testing (immaterial for 2 years).

The Merrill Lynch price target is a whopping $300, and the Wall Street consensus target is $251.29. Shares closed trading on Tuesday at $225.35.

The other tech stocks in the US 1 list have been hit hard recently and may be offering aggressive accounts good entry points for at least a partial position.

Salesforce.com

This top company reported solid fiscal 2018 second-quarter results as billings drastically improved. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide.

It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.

The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.

Historically Salesforce tends to outperform in the first quarter of a calendar year, and the stock would be a great pickup on any steep reversal.

The Merrill Lynch price target for the shares is $147, while the consensus price objective is $137.43. Shares closed on Tuesday at $116.49.

NetApp

NetApp Inc. (NASDAQ: NTAP) was added to US 1 list earlier this year and has been on big run since last fall. The company provides software, systems and services to manage and store computer data worldwide. It offers flash; flash arrays that support data management; hybrid arrays to deploy the speed of flash storage; hybrid cloud; ONTAP cloud storage data management service; NetApp cloud sync hybrid data management software as a service; NetApp private storage for cloud; and AltaVault cloud-integrated solutions.

Merrill Lynch has seen some strong reports from the company and noted this when adding the stock to the US 1 list:

We are adding NetApp to US 1 list following our recent upgrade. The company gained significant share both in overall external storage and in the fast growing All Flash Array market. The April analyst day should drive clarity around cloud opportunity, quantify dividend increase and additional share repurchases.

Shareholders receive a 1.32% dividend. The $74 Merrill Lynch price objective compares with the $63.27 consensus estimate. The stock closed most recently at $60.63.

Qualcomm

This company also was recently added to the Merrill Lynch US 1 list. Qualcomm Inc. (NASDAQ: QCOM) designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.

In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.

Shareholders receive a 4.16% dividend. Merrill Lynch has a $75 price target. The consensus target is $69.98, and the stock closed at $54.78.

Technology stocks are still in the cross-hairs of sellers, and while all these companies are leaders in their specific silos, you can’t fight the trend. Although the sell-off in tech has brought the lofty multiples back down from the stratosphere, it makes sense to proceed with caution now. Buying a partial position here and watching the first-quarter results and commentary seems like the best path.