Deutsche Bank’s Top Tech Stocks to Buy Offer Big 2018 Upside Potential

June 6, 2018 by Lee Jackson

While the technology trade has been outstanding for investors over the past five years, there is one thing that is the light in the tunnel that is dead ahead. Many of the top companies that have supplied those outstanding gains are getting a little long in the proverbial tooth, and while it’s smart to stay invested in the sector, it may make sense to look for new ideas with bigger upside.

A series of new Deutsche Bank research reports zero in on some top technology stock the firm has rated Buy that still have some big upside potential. While not suited for more conservative accounts, they look like good companies for aggressive growth portfolios.

Broadcom

This company has been on fire over the past year and remains a top pick at Deutsche Bank and across Wall Street. Broadcom Ltd. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.

Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand, and while the company was blocked in its attempt to buy Qualcomm, new chip designs are expected to drive future growth.

Broadcom has big exposure to the cloud through its Enterprise Storage segment (HDD controllers) and general data center build-outs in its Wired Infrastructure segment. Within HDDs, enterprise units are 15% to 20% of the business on a unit basis and 20% to 30% on a revenue/profit basis.

Also note that the company will report its fiscal second-quarter results on Thursday after the market closes.

Broadcom investors are paid a 2.91% dividend. The Deutsche Bank price target for the shares is $310, and that compares with the Wall Street consensus price target of $310.34. The stock closed trading on Tuesday at $259.26 per share.

Corning

This was a huge player in the fiber build-outs in the 1990s and may be ready to ramp back up for new deployments. Corning Inc. (NYSE: GLW) is one of the world’s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics and optical physics.
Its products enable diverse industries such as consumer electronics, telecommunications, transportation and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks and off-road vehicles.

Many see the company as a winner in not only the new 5G wireless but also strong Internet of Things applications. Most see both areas as infrastructure opportunities for the company given the robust demand for IoT connectivity and 5G infrastructure builds. The analysts also note Cloud demand as a new growth driver for “Optical Connectivity.”

The analysts noted this positive in the report on Corning:

The company announced before market open Tuesday, that it has “largely completed the previously announced acquisition of substantially all of the Communication Markets Division from MMM”. Management anticipates closing the sale of the “remaining Telecommunications System Integration Services business later in 2018” – subject to customary closing conditions and regulatory approvals. It is our view that the acquisition of MMM’s Communication asset is a modest positive to GLW’s Optical Communications fundamentals and Corning’s portfolio competencies in key segments: In-Building Networks, High Bandwidth Products and in multiple geos: Europe, Middle East, Asia, Central America and Latin America.

Corning investors are paid a 2.52% dividend. Deutsche Bank has a $35 price target for the stock, while the consensus target was last seen at $33.09. The shares closed on Tuesday at $28.57.

Dell Technologies

The iconic tech pioneer returned from the land of the private companies and the stock has done very well. Dell Technologies Inc. (NYSE: DVMT) designs, develops, manufactures, markets, sells and supports a range of information technology (IT) products and services worldwide. The company operates through three segments: Client Solutions Group, Infrastructure Solutions Group and VMware.

The reborn public company arose out of the old Dell Computer organization, which paid a staggering $67 billion back in 2015 to buy storage company EMC, which owned a controlling stake in software and virtualization company VMware. EMC gave Dell an avenue into the valuable hybrid cloud computing market. Many on Wall Street and in the tech world believe the $67 billion price was a bargain and Dell and its investors could make a substantial amount of money when all is said and done with the avenue to the cloud business opened up.

Dell Technologies posted solid results this week and the Deutsche Bank team weighed in:

For investors in VMware and the DVMT tracking stock, Dell’s results are important as a key measure of whether Dell is approaching its “strategic review” from a position of strength or weakness. In our view, the better Dell’s results, the lower the likelihood that Dell will be forced into an organizational change (such as a reverse merger with VMware) and the lower the likelihood that any transaction will be done at terms detrimental to VMware and/or DVMT holders. Bottom line, this was another solid print by Dell that showed signs of improvement, not deterioration, and that further undermine the lingering narrative that Dell is so troubled that it must find a way to access VMware’s cash.

The $120 Deutsche Bank price target is well above the posted consensus target of $102.17. The stock closed trading on Tuesday at $86.65.

Lam Research

This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.

Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.

The Deutsche Bank analysts like the company’s exposure to memory and feel the continued strength in the sector is a positive for the coming year. They also think fears of capital intensity are overblown and the company will outpace industry WFE trends. They noted this in the research piece:

We met with Tim Archer, President and COO, and Ram Ganesh, Senior Director of Investor Relations. While not providing an update to near term business, the company emphasized the variability of its operating model and its ability to quickly adjust to changing customer requirements on short lead times. They continue to believe its first half 2018 shipments will be slightly higher than the second half, with NAND being first half-weighted, DRAM fairly balanced, and Foundry/Logic more second half-weighted

Shareholders of Lam Research are paid a 2.17% dividend. Deutsche Bank has set its price target at $260. The consensus price objective is $268.62, and the shares ended the day on Tuesday at $201.84.

Monolithic Power Systems

This off-the-radar play could be offering continued upside potential. Monolithic Power Systems Inc. (NASDAQ: MPWR) designs, develops and markets integrated power semiconductor solutions and power delivery architectures for consumer, industrial, computing and storage, and communications market segments.

The company offers direct current (DC) to DC converter integrated circuits (ICs) used to convert and control voltages of various electronic systems, such as portable electronic devices, wireless LAN access points, computers, monitors, automobiles and medical equipment.

It also provides lighting control ICs for backlighting that are used in systems, which provide the light source for LCD panels in notebook computers, monitors, car navigation systems and televisions, as well as for general illumination applications. In addition, it offers alternating current (AC)/DC offline solutions for lighting illumination applications and AC/DC power conversion solutions for various end products that plug into a wall outlet.

The analysts said this in the report:

The company will host an analyst meeting at its headquarters in Silicon Valley on Thursday, June 7. This will be the first such meeting in nearly 3 years, so we thought it would be helpful to investors to outline a few topics/questions that could be addressed during the event. MPWR may provide a financial update for the Jun-qtr (they provided an intra-quarter update 3 years ago), but otherwise, we hope that these topics get addressed in some fashion: 1) Target model, 2) Current SAM and execution towards it, 3) Segment growth expectations, 4) Capital allocation.

Shareholders are paid just a 0.9% dividend. Deutsche Bank raised its price objective is to $140 from $135. The consensus target price is $135.11, but the shares were last seen trading at $135.76 apiece.

These five companies are solidly profitable but are not constantly in the glare of the momentum stock crowd. They all are good additions at current trading levels and should have a very solid second half of 2018.

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