Following a rocky Q1, now the million-dollar question is: How will tech stocks perform in Q218? Wall Street is unclear. Although tech still boasts the highest expected sales growth and profit margins, the sector also has high risks from tax reform, valuation, and government regulation.
The upshot of this risk/reward is that investors need to be more savvy about how to pick winning tech stocks going forward. Here we used TipRanks' Top Analyst Stocks tool and Stock Screener to find top tech stocks with 1) a Strong Buy analyst consensus rating from top analysts and 2) big upside potential for the coming year. The data is all based on Street ratings from the last three months.
Within the tech sector, these three stocks still stand out as particularly compelling investing opportunities. Let’s take a closer look now:
Google-parent Alphabet has an earnings track record that other companies can only dream about. Ahead of its Q1 earnings report, GOOGL boasts 32 consecutive quarters of 20% revenue growth and 25%+ operating margins. So what can we expect this earnings season?
Five-star RBC Capital analyst Mark Mahaney is modelling for Core Google gross revenue of $30.13B (up 23% Y/Y), driven by strength in Mobile Search, Programmatic, and YouTube.
He wrote: “We do worry about Government Risk, especially for GOOGL. And competitive risk from the likes of Amazon. But we continue to believe GOOGL is one of the strongest, most consistent fundamental stories out there. And the valuation pitch remains constructive.”
Specifically, Mahaney’s ad survey revealed that that the majority of marketers plan to increase their spending on Google (52%), while the next-largest group intent to maintain current spending levels (40%). Conversely, only 7% of marketers believe that they will decrease their spending on the platform. “We continue to view Google as an almost essential marketing channel for most businesses – something of a utility,” Mahaney said.
He has a $1,285 price target on the stock- indicating 24% upside potential from current levels. This falls just below the average top analyst price target of $1,301. Overall, we can see from TipRanks that GOOGL, a “Strong Buy” stock, has received 23 buy ratings vs 3 hold ratings in the last three months.
Autodesk Inc (ADSK)
This groundbreaking 3D design company makes software for people who make things. In the last three months, Autodesk has received an impressive 12 back-to-back buy ratings. One of these bulls is five-star Robert. W Baird analyst Robert Oliver. Not only has he just ramped up his price target by $10 to $155, he also calls the stock a Fresh Pick. Oliver believes Autodesk can spike 20% from current share price.
Most interestingly, Oliver isn’t alone. Top Oppenheimer analyst Koji Ikeda has also selected ADSK as his Top Stock Pick in Saas/ Applications Software. Ikeda gives three reasons why he is such a fan of Autodesk, namely: 1) its dominant market positioning; 2) rapid innovation and 3) strong execution. Right now the company is undergoing a transition to subscriptions, which is anchored by bullish FY2020 financial targets.
Looking further afield Ikeda sees a long growth trajectory: “We believe the business is well positioned in a large but lightly penetrated construction industry that is yearning for next-generation technologies, like Autodesk's, to help digitize the industry, which should act as a pillar for Autodesk's next leg of growth beyond FY2020.”
Overall, analysts predict that this “Strong Buy” stock has almost 18% upside from the current share price. And notably even the lowest price target of $135 still means upside for this steadily rising stock.
First Data Corp (FDC)
First Data scoops first prize as the top fintech stock. This is according to the wisdom of Oppenheimer analyst Glenn Greene. He has just selected the stock as a Top Pick based on First Data holding a relatively rare position as merchant acquirer, network, and issuer processor. More broadly, Greene believes FDC benefits from the ongoing secular transition toward electronic payments. As we all know from our own lives, people are increasingly turning away from cash and checks, and towards simple electronic transactions.
According to Greene: “The company has an attractive business model, characterized by transaction-related fees, multi-year contracts, a diverse client base, and high incremental margins.” Plus we should see strong earnings growth as FDC “applies its sizable annual FCF [free cash flow] to debt paydown, and a narrowing of the valuation discount to peers WorldPay and Global Payments as it gradually de-leverages.”
In terms of upside potential, Greene’s $23 price target suggests impressive growth potential of 50%. Note that this is an analyst worth following: our data shows Greene as a Top 10 analyst for his stock picking ability. He currently boasts an 82% success rate and 20.7% average return on his recommendations.
Like the two stocks discussed above, First Data has a ‘Strong Buy’ rating from the Street. In the last three months, 8 top analysts have published buy ratings with only 1 analyst staying sidelined. These analysts have an encouraging average price target of $21.61 (41% upside).
Our database covers over 5,000 stocks. Find your own “Strong Buy” stocks in the sector that interests you the most. Go to the Nasdaq Smart Portfolio stock screener now.