The second-quarter earnings season is in full force this week, and with some of the mega-cap market leaders coming with results, investors will be looking for guidance for the balance of the year. The stock market peaked six months ago, in January, and stocks have traded sideways since, with much of the sector gains being provided by the FANG stocks.
With technology likely to continue to lead, investors looking to stay in the space or add to positions are in a difficult situation. The tech mega-caps that have led the charge are extended, and any trip up could cause them to plummet.
We screened the Merrill Lynch research universe for technology companies rated Buy that still look to have solid upside to the firm’s price targets and are not trading in the multiple stratosphere. We found four that look like solid plays going forward.
Advanced Micro Devices
After years of frustrating performance, Advanced Micro Devices Inc. (NYSE: AMD) appears to have turned the corner and is a hot commodity on Wall Street. AMD is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.
Last year the company released its first major offering in five years, the Ryzen chipset, which many feel is uniquely positioned to compete with the big players like Intel and Nvidia in the $50 billion total addressable market for personal computers, gaming, artificial intelligence and servers.
A recent Merrill Lynch report noted this:
We highlight the company’s drastic product mix shift in first quarter which we believe could be the start of a sustained mix shift to more premium products. Per Mercury research, a record 44% of AMD’s desktop dGPU shipments in first quarter were in graphics cards with a $300 or higher ASP. We suspect this largely captures a steep pick up in Vega GPU shipments since most of the company’s Polaris/earlier products are built into graphics cards that carry an ASP of less than $300. In the fourth quarter of 2017, shipments of $300+ graphics cards accounted for just 15% of overall AMD desktop units which implies sharp (200%+) quarter over quarter growth.
The Merrill Lynch price target for the stock is $20, and the Wall Street consensus price objective was last seen at $15.73. The shares closed trading on Monday at $16.66. AMD is expected to report earnings on Wednesday.
This blue chip leader still may be offering investors the best entry point in years. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.
IBM’s five major segments are: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for their positive outlook going forward.
For the second quarter, IBM beat analyst expectations on both revenue and earnings per share, despite some currency headwinds. At current trading levels the stock is a bargain, especially if the company can continue to grow its cloud business.
IBM shareholders are paid a large 4.31% dividend. Merrill Lynch has a price target of $200, while the posted consensus target is $170.75. The stock closed Monday at $145.70 a share.