As recently as July 1, tech sector stocks traded down about 23% in 2022. The hardware industry performed even worse, down nearly 27% on the same date. Since then, however, the tech sector has narrowed its loss to around 10% while the hardware industry’s loss has shrunk to just 2% for the year to date.
Analysts Shannon Cross and Ashley Ellis at Credit Suisse have initiated coverage of 20 top hardware stocks, awarding Outperform ratings to 11, Neutral ratings to seven and Underperform ratings to two. Included in this group are 13 traditional tech stocks, two equipment manufacturing services (EMS) providers and five 3D printing stocks.
Before going into some detail about the top-rated stocks, here is a quick look at some of the stocks that were rated either Neutral or Underperform.
3D Systems was given an Underperform rating and a price target of $8. Based on a current price of around $11.20, Credit Suisse expects shares to drop 29% of their value. The analysts noted rising costs and sagging gross margins.
The other Underperform rating went to Xerox, along with a price target of $14. That implies a price decline of around 24% from a recent price of about $18.40. Analysts Cross and Ellis do not expect operating margins to rise into double-digits again “in the foreseeable future.”
Hard drive makers Seagate and Western Digital were both started at Neutral. Seagate’s price target of $80 is within pennies of the current price. Western Digital’s price target of $52 implies a potential gain of 9% based on a price of around $47.70 a share.
3D printer makers Markforged and Velo3D were also started with Neutral ratings. Markforged’s price target is $2.70 and Velo3D’s is $5.40. At current trading levels, Markforged stock trades only pennies below the target. Velo3D’s potential upside, based on a recent price of around $4.25, is 27%.
Among the Outperform-rated stocks, Apple Inc. (NASDAQ: AAPL) is one of the analysts’ top picks. Apple’s strong balance sheet, mountain of cash, massive installed base and growing subscription and services businesses are a potent combination. Cross and Ellis assumed coverage of Apple with a price target of $201, implying an upside of around 17% to the current price. They commented: “In our view, Apple’s large cash balance provides the company with ample dry powder for organic investments, shareholder return, and continued M&A.”
CDW Corp. (NASDAQ: CDW) is a value-added reseller of computer hardware and software. Credit Suisse’s Outperform rating is accompanied by a price target of $202, implying an upside of 7.7% to the stock’s current price. The analysts note that over the past dozen years, CDW has outperformed the tech market by an average of 3.3% annually. A drop in demand for PCs, which account for around 40% of the company’s business, is a major risk to the stock price.
PC maker Dell Technologies Inc. (NYSE: DELL) was started with an Outperform rating and a price target of $60, implying an upside potential of around 26%. As is the case with CDW and other PC makers in Credit Suisse’s coverage, a sharper-than-expected drop in PC demand is a major risk. The company’s foray into cloud services is a positive, but there are a lot of competitors for customers.
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