Technology

Top Jefferies Momentum Growth Stocks to Buy Have Huge Potential Catalysts

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Increasingly, the companies that we cover on Wall Street agree that while the future is still bright for the U.S. economy, despite the COVID-19 induced troubles, the future may be one of stock market gains that are much lower than the norm has been over the past decade. When that is the case, then investing strategies often shift from indexing to a more disciplined stock-picking routine. That’s when investors need solid growth ideas.

Jefferies highlights its top growth stocks picks each week, and this week is no exception. The team has reviewed second-quarter results and is very positive going forward on some of the biggest and most powerful technology and momentum giants.

These four stocks look like solid picks for more aggressive growth investors and all have significant catalysts that can drive growth for the rest of 2020 and beyond. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Activision Blizzard

This remains a top gaming pick on Wall Street, and Jefferies remains very positive on the shares. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide.

The company develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers. Its legacy franchise Call of Duty continues to be hugely popular.

The analysts said this when discussing the firm’s stellar second-quarter earnings:

Company reported better than expected results and guided 2020 EPS ahead of consensus. The second quarter growth rate of 72% was the highest we’ve ever seen, and we believe COVID-19 may have accelerated the company’s current momentum. We continue to see a path to three straight years of EPS growth, with the potential for 2022 to accelerate from 2021 depending on the success of Diablo 4. While we expect bears to focus on flat Blizzard monthly active users and soft fourth quarter guidance, we noted that additional content is coming, Blizzard was still able to grow revenue 20% in the quarter and conservative guidance is likely due to macro uncertainty.

Investors receive just a 0.50% dividend. The Jefferies analysts have a $102 price objective on the shares, and the Wall Street consensus target price is $92.53. Activision Blizzard stock closed Friday $82.47, down over 5% on the day.

AMD

This top semiconductor company has been on fire and there are many reasons to believe the stock can go much higher. Advanced Micro Devices Inc. (NYSE: 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.

Shares rose last year on the back of Google’s announcement concerning Stadia at last year’s game developers conference. The AMD CEO had noted that Google’s cloud gaming platform was using AMD Radeon GPUs and the announcement then confirmed it. The close partnership suggests that Google ultimately may announce that it will use EPYC 2 server MPUs.

A huge turn of events at a big competitor has opened up a massive opportunity for the company, and the Jefferies report noted this:

Intel’s announcement that its 7 nanometer transistor would be delayed follows its 10 nanometer transistor delays, and lead us to believe its transistor challenges are systemic and that Taiwan Semiconductor/AMD’s transistor lead will extend. As the transistor gap extends, we expect AMD share gains, particularly in the server market, to accelerate from 50-100 basis points per quarter they have seen over the past two years, to 100-200 basis points per quarter going forward, and at a higher rate as the transistor gap between Taiwan Semi/AMD and Intel widens. As a result, we think that the bull case for AMD, which is based largely on AMD capturing 30% share from Intel over the next 2-3 years will morph to a 50% market share bull case 4-5 years out.

The $94 Jefferies price target compares with a much lower $75.33 consensus target. Advanced Micro Devices stock ended last week trading at $84.85 a share.


Ciena

This company has frequently been the subject of takeover rumors. Ciena Corp. (NASDAQ: CIEN) is a vendor for high-capacity optical transport and Ethernet switching equipment to carriers, enterprises, cable operators and governments. It specializes in transitioning legacy communications networks to converged, next-generation architectures capable of efficiently delivering a broader mix of high bandwidth services.

The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN configuration for the 5410 Reconfigurable Switching System.

President Trump’s tough stance on Chinese technology companies could be a huge catalyst for the company. The analysts noted this:

Using LinkedIn data, we drilled down into Huawei’s wavelength division multiplex market share position across the 50 top carriers in Europe. Based on our analysis, we believe that Huawei generates nearly $1 billion in total annual sales in Europe and looking at the accounts where there’s an overlap, we estimate that Ciena has ~$750 million in available market share opportunity. Furthermore, we believe that market share wins could come over more quickly than investors are anticipating as our analysis shows many carrier accounts where Ciena is already a secondary supplier to Huawei in Europe. We noted that in those situations, share could transition to Ciena without the long evaluation process. We continue to like Ciena shares and see them as a major beneficiary of market share consolidation in Optical systems.

The Jefferies price target is $63. The consensus target is $61, and the last Ciena stock trade on Friday came in at $60.99.

RingCentral

This smaller cap company also could be a great takeover target, and it is a member of the Jefferies Franchise Picks list. RingCentral Inc. (NYSE: RNG) offers a cloud-based solution for business communications that replaces legacy and expensive on-premise communications systems. It is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, text, fax, audio conferencing and integration with document and customer relationship management systems.

For some time, Jefferies has believed the company has multiple catalysts, including continued traction with mid/enterprise customers, increased partner traction, international expansion and continued dislocation in the industry from legacy PBX/UC vendors.

Last year, Avaya entered into a strategic partnership with RingCentral in which it will introduce a new unified communications as a service (UCaaS) solution. Under the agreement, RingCentral will contribute $500 million to the deal and will be Avaya’s exclusive provider of UCaaS solutions.

Jefferies feels the potential for growth is high, and the research report said this about the strong earnings:

The company’s second quarter results beat across the board and more impressively, we noted that the size of the subscriber revenue and total annual recurring revenue beats were larger than in the first quarter. The company’s updated revenue guidance was also strong as new subscription revenue guidance was increased by 1.8%, or $18.5 million, more than the $12.5 million beat in the second quarter. This strength is impressive and is driven by accelerating partnership momentum, int’l expansion and up market penetration. Ring Central’s execution, secular tailwinds, and ramping partnerships give us confidence about the second half and the likelihood of further acceleration in growth in 2021.

Jefferies recently raised its price target to $370. The posted consensus target for RingCentral stock is $341.54. Shares were last seen trading at $269.00 apiece.


These four stocks offer investors strength in their specific technology industries and the ability to generate some significant portfolio alpha. They are suitable for growth investors with a larger degree of risk tolerance.

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