Why This Segment of Technology Could Run the Rest of 2018

Print Email

Clearly, technology has been a huge winner over the past few years, and since the advent of the iPhone in January of 2007, the entire technology universe has grown. Back then the cloud for computing, storage and content distribution from streaming was still pretty much in its infancy. Just over a decade later, things have moved in light speed fashion, and they will continue to do so going forward.

The question for many investors is where is the money to be made going forward, given some of the massive run-ups in the FANG stocks, semiconductors and more. One area that could be enticing is technology distribution, or the art of getting technology to the teeming masses.

In a new report, Stifel admits that inventories for components and connectors are at very high levels and sees some danger on the horizon. However, their coverage universe of technology distribution has four stocks rated Buy that are all well off 52-week highs and could be solid bets for those looking to find some value in a very valuable sector.

Arrow Electronics

This award-winning company looks poised to come in strong for the quarter. Arrow Electronics Inc. (NYSE: ARW) is a worldwide provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions.

The company has over 800 suppliers and 100,000 customers, which include original equipment manufacturers, contract manufacturers and commercial customers in 83 countries. Arrow Electronics operates in two business segments — Global Components and Global Enterprise Computing Solutions — which accounted for 67% and 33%, respectively, of sales.

The company reported that first-quarter 2018 sales of $6.88 billion were 20% higher than a year ago. Net income saw a year-over-year gain too and came in at $139 million.

The Stifel price target for the stock is $85, and the Wall Street consensus figure is $88.50. Shares traded early Friday at $76.40.

CDW

CDW Corp. (NASDAQ: CDW) came back from private equity land over four years ago and has done outstanding since. It provides information technology (IT) products and services to business, government, education and health care customers in the United States and Canada. It offers discrete hardware and software products to integrated IT solutions, such as mobility, security, data center optimization, cloud computing, virtualization and collaboration.

This stock has been highlighted in the past as having virtually no exposure to China and as a very attractive and somewhat defensive small/midcap play for investors. Analysts also think that the company has benefited from the integration of U.K. IT services and solutions provider Kelway.

CDW expanded its channel partnership relationship with Dell in 2016. The expanded relationship added over 150 basis points, or 1.5% (more than $200 million), to CDW’s top line growth in 2016. Stifel thinks the potential for this relationship remains a $1.5 billion opportunity. Dell’s PC/server results should be a positive for CDW.

CDW investors receive a 1.07% dividend. Stifel has an $86 price target, and the consensus target is $83.92. Shares traded at $78.40 Friday morning.

Synnex

This company flies somewhat under the radar, but it is way off its highs and offers a great entry point. Synnex Corp. (NYSE: SNX) is a business process services company that provides a range of distribution, logistics and integration services for the technology industry and providing outsourced services focused on customer engagement strategy.

The company’s Technology Solutions segment distributes peripherals, IT systems, including data center server and storage solutions, system components, software, networking/communications/security equipment, and consumer electronics and complementary products.

Within its Technology Solutions segment, the company also provides systems design and integration solutions. The Synnex Concentrix segment offers a portfolio of solutions and end-to-end business services focused on customer engagement strategy, process optimization, technology innovation, front and back-office automation and business transformation.

Investors are paid a 1.28% dividend. The $140 Stifel price target compares with the $139.63 consensus target. The shares were last seen near $109.30.

Tech Data

This stock gapped down big-time in early March and still may be offering a very sweet entry point. Tech Data Corp. (NASDAQ: TECD) is an international wholesale distributor of information technology products and related services with product sales accounting for 90% of its revenue.

The company has 115,000 customers, including value-added resellers, corporate resellers, direct marketers and retailers spread across 100 countries in the Americas and Europe. Tech Data sells over 125,000 products from over 1,000 manufacturers.

Last month the company announced the appointment of Chief Operating Officer Rich Hume as chief executive offer, effective June 6, 2018. The outgoing CEO is staying on as executive chairman. The transition was part of long-term succession planning, with Hume joining the company from IBM with the intent of taking over top role. Hume has been deeply involved in the strategic direction at the company over past two years, and most Wall Street analysts anticipate no change in future strategy.

Stifel has set its price target at $110. The consensus figure sits at $106.57, and the shares traded at $81.70.

These four outstanding technology distribution stocks all offer solid upside from current trading levels and are also not trading at nosebleed 52-week highs. They make sense for aggressive accounts looking to add technology stocks without the fast-money momentum factor.