With the first quarter ending on Friday with a huge upsurge, it may make sense for investors to take a deep breath. With the market posting the best first quarter in almost 10 years, after a fourth quarter that delivered a gut-wrenching near 20% decline, the real question for most investors is where we go next. With first-quarter earnings reports right around the corner, and a host of issues stirring the political and geopolitical pot, is it time to take a step back or to get aggressive and look for a momentum move higher?
One sector that had a very solid showing during the first quarter was technology. The recent pullback may be giving investors a solid entry point on some of the top companies. We found four that were rated Buy at Merrill Lynch that bucked the recent pullback trend and look like they have some big momentum heading into the second quarter.
Arista Networks
The analysts see this company as an outstanding growth play for 2019. Arista Networks Inc. (NYSE: ANET) develops high-performance cloud networking solutions, including switches, an advanced software-defined networking (SDN) operating system and SDN applications. The company’s low-latency switches lower networking costs for high-frequency trading platforms, large internet companies and cloud service providers.
The company reported strong fourth-quarter revenues of $596 million and earnings of $2.25 per share, which beat the consensus forecast solidly. In addition, first-quarter guidance also beat Wall Street expectations.
While some of the company’s peers have reported cloud spending slowing, Arista is bucking the trend and expects strong cloud spending to continue in 2019. Mid-term to long-term growth drivers include campus switching, routing and 400-gig solutions.
The Merrill Lynch price target for the shares is $300, while the Wall Street consensus target is $298.54. The stock closed above both levels on Friday at $314.46 a share.
Broadcom
This stock has broken out to all-time highs. Broadcom Inc. (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.
Broadcom investors receive a 3.52%% dividend. Merrill Lynch has a $325 price target, and the consensus target is lower at $307.03. Shares closed Friday at $300.71 apiece.
CyberArk Software
This company’s less than $5 billion market cap may make it a prime takeover target. CyberArk Software Ltd. (NASDAQ: CYBR) claims to be the only security company focused on eliminating the most advanced cyber threats, those that use insider privileges to attack the heart of the enterprise.
The company proactively secures against cyber threats before attacks can escalate and do irreparable damage. It is estimated that at least 35% of the Fortune 100 and 17 of the world’s top 20 banks use the software to protect high-value information assets, infrastructure and applications.
CyberArk pioneered of a new layer of IT security solutions that protects companies from cyber attackers that have evaded the network perimeter. CyberArk solutions secure an organization’s critical assets, dubbed privileged accounts, which are the keys to databases, industrial control systems, servers and applications, all which house sensitive data. CyberArk software is focused on protecting these accounts, which are highly targeted in cyberattacks to disrupt networks or steal sensitive info.
The $116 Merrill Lynch price objective is less than the $120.63 consensus estimate. Shares closed at $119.05 on Friday.
24/7 Wall St.ServiceNow
This stock had an incredible 2018 and remains a top Wall Street pick. ServiceNow Inc. (NYSE: NOW) develops and sells a hosted, subscription-based suite of services designed to automate various IT department functions, such as help desk, operations management and change/release management.
The company also sells a number of applications that automate various self-service related applications outside of the IT department, such as HR onboarding, facilities requests and governance, risk and compliance.
Federal government business is said to be tracking at or above quota for the first quarter, partners have reported rapid growth in their company practices and top Wall Street analysts have noted continued success in replacing Remedy and high-win rates in general.
Merrill Lynch has a price target of $235. The posted consensus target is $240.06, and shares have blown by both of those levels to close most recently at $246.49.
When technology stocks become momentum stocks and blow through price targets at major firms where they are rated Buy, you know they are strong. With incredible relative strength, and little if any upward resistance, these might be great trades for accounts seeking alpha. That said, priced to perfection, they need to deliver the goods, or they could face some sharp selling.
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