With huge deals and mergers in the telecom, cable and satellite industries, the first half of the year has been a blockbuster indeed. While the second half may not hold the same fireworks, it could prove to be rewarding for investors long the sector. In a new research report, the telecom team at RBC thinks that global capital expenditures (capex) on wireless could increase as much as 6% this year, which would be up 100% from their prior view of 3%. With much of this back-end loaded on the calendar for 2014, this could provide a nice tailwind for their top stocks to buy for the second half of the year.
Here are some of the top telecom and networking picks from RBC. All are rated Outperform.
Cisco Systems Inc. (NASDAQ: CSCO) finally stepped up to the earnings plate and hit the ball out of the park. Its recent earnings surprise help to lift the stock after many disappointing reports over the past year. We pointed out recently that the networking giant could prove to be a good match with Rackspace Hosting Inc. (NYSE: RAX) as it is expanding its business in scale all over the globe. In addition, changes in technology make adding a large cloud computing entity a smart move for the Silicon Valley veteran. With more than $50 billion in cash, needless to say the company has the wherewithal to get a deal done. Investors are paid a 3.1% dividend. The RBC target price for the stock is $24. The Thomson First Call price target is $24.99. Cisco closed trading Thursday at $24.38 a share.
F5 Networks Inc. (NASDAQ: FFIV) has been on fire over the past six months, a recent pullback may provide a better entry point for investors. The company provides solutions for an application-based world, and it helps organizations seamlessly scale cloud, data center and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of information technology (IT) through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. Many Wall Street firms think the company also will be able to market its security products to more customers this year. The RBC price target is $135, and the consensus is posted at $121.91. Shares ended Thursday at $107.63.
Qualcomm Inc. (NASDAQ: QCOM) is rated Outperform and is probably one of Wall Street’s favorite overall tech stocks. Lenovo, which is one of the fastest growing technology companies, will mainly rely on Qualcomm chips for handsets shipped outside China due to intellectual property reasons. It was also recently announced that software giant Microsoft Inc. (NASDAQ: MSFT) plans to use Qualcomm chips in its new, smaller version of the Surface tablet, and the company is a big supplier for the Windows phone as well. Investors are paid a solid 2.1% dividend. The UBS price target is $84. The consensus target for the stock is $84.96. Qualcomm closed Thursday at $79.56.
Ericsson (NASDAQ: ERIC) is a former industry high-flyer that has almost totally fallen off radar screens. The RBC team rates the stock at Outperform, and investors could see solid upside. Though somewhat overlooked, the company remains a world leader in communications technology and services. It provides software and infrastructure services, specializing in mobility, broadband and the cloud, and support networks that connect more than 2.5 billion subscribers. RBC has a $16 price target, and the consensus target is $14.08. Ericsson closed Thursday at $12.34.
Arris Group Inc. (NASDAQ: ARRS) is in the communication equipment manufacturing industry, and the investors saw earnings per share growth of 118.6% last year. This year is looking solid as well. The company created digital TV, delivered the first wireless broadband gateway and is pioneering the standards and pathways for tomorrow’s personalized, ultra HD, multiscreen and cloud services. The RBC team also thinks the company will benefit from an upcoming equipment upgrade cycle. Their price target for the stock is $35, and the consensus is at $34.56. The stock closed Thursday at $30.85.
Brocade Communications Systems Inc. (NASDAQ: BRCD) has started to gain a larger following on Wall Street, and it is a good name for aggressive technology investors. Trading at a very cheap eight times forward earnings, and with solid partnerships with VMware (NYSE: VMW), the stock could be poised for a solid second half of the year. The RBC price target is $12, and the consensus target is much lower at $9.50. Brocade closed Thursday at $8.65.
If the RBC team is right, and the capex growth does accelerate over the rest of the year, there could be some outstanding earnings reports delivered in the third and fourth quarters. Investors should be prudent and scale in to some of these names that have traded up with the overall market. Adding partial positions now and seeing if there is a summer sell-off to add more may be the best plan.
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