We have been warning readers, long before the coronavirus issues came to the forefront, that the market was overbought and expensive. The spread of the deadly virus was just the proverbial black swan, or the tail-risk that was needed to push the sellers to the table, and why not? On March 9, the bull market run will mark 11 years since the bottom in 2009. Many investors, both retail and institutional, have some big gains, and some of those are being taken right now.
The good news for investors is a cure for the coronavirus is being worked on 24/7, and for the most part, the U.S. economy continues to act well. Fourth-quarter earnings were solid, and most forward guidance, while tempered with the possible impact from the virus, was solid too.
Investors who wisely started moving to larger cash positions will now have perhaps some of the best opportunities in years to add sector and industry leaders at greatly reduced prices. We screened the Merrill Lynch technology research database for mega-cap technology leaders rated Buy that are must-own names for long-term investors.
Alphabet
The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
Google has outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties, each with at least a billion active users (Android, Search, Chrome, Maps, Play, YouTube and Gmail).
Advertising remains a huge growth area as well, and the analysts expect the company to be a huge winner as product and service vendors look to reach the biggest possible audience.
Merrill Lynch has set a $1,620 price target for the shares, while the Wall Street consensus target is $1,610.04. Alphabet stock closed Tuesday’s trading at $1,386.32.
Amazon
This company is the absolute leader in online shopping and is on the Merrill Lynch US 1 list of top stock picks. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. It has one of the most valuable brands in the world.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
The company is also rolling out its checkout-free Go technology in a large grocery store and plans to license the cashier-less system to other retailers. Amazon Go Grocery opened in Seattle on Tuesday. It uses an array of cameras, shelf sensors and software to allow shoppers to pick up items as varied as organic produce and wine and walk out without stopping to pay or scan merchandise. Accounts are automatically charged through a smartphone app once shoppers leave the store.
The Merrill Lynch target price is a whopping $2,480, and the consensus target is $2,404.29. Amazon.com stock closed at $1972.74 on Tuesday.
The huge social media leader has been on a roll, and the analysts remain very positive. Facebook Inc. (NASDAQ: FB) is the largest social network, with over 2.3 billion monthly active users and over 1.6 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.
The company’s solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends. Messenger, a messaging application for mobile and web on various platforms and devices, enables people to reach others instantly, as well as enable businesses to engage with customers. WhatsApp Messenger is a mobile messaging application.
Facebook reported solid fourth-quarter results that beat expectations. Going forward, management expects revenue growth deceleration in the first quarter, and it said in the earnings call that the majority of the ad targeting headwinds are ahead of the company. That said, many analysts are buyers on any stock weakness, citing commerce advertising, Facebook messenger and Instagram.
The $250 Merrill Lynch price target is in line with the $248.09 consensus price target. Facebook stock closed most recently at $196.77.
Microsoft
This legacy technology leader has a massive $133.8 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses and supports a wide range of software products. The company has transformed its business model from a component-driven model (PC, server) to one driven by the need for cloud capacity. It is also considered one of the best companies to work for.
Many Wall Street analysts agree that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service.
Microsoft reported strong fiscal second-quarter results across the board, with Azure accelerating to an impressive 64% year-over-year growth rate from 63% last quarter. Total revenue growth was 15%, and management guided double-digit revenue growth and 2% of operating margin expansion in fiscal 2020. The analysts see strong visibility into double-digit percentage revenue growth, supported by multiple drivers (Intelligent Cloud, Productivity & Business Processes) and secular trends for the foreseeable future.
Shareholders receive a 1.5% dividend. The Merrill Lynch price target is $200. The consensus price objective is $194.19, and Microsoft stock closed Tuesday at $168.07.
Given the performance of these stocks into the withering selling over the past two trading days, it is pretty obvious portfolio managers are using the dip, and literally any dip, to add to positions. These companies are dominating their respective technology silos and should continue to long after the coronavirus worries have left the center-stage position.
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