8 Tech Stocks You Should Buy Despite Market Volatility, Says Deutsche Bank

Editor's pick: Originally published Jan. 11.

The technology sector is one of few sectors where Deutsche Bank is recommending to investors to park their money in 2016, even as volatility puts a damper on the markets so far this year.

The tumultuous stock market this month has caused many investment firms to already amend their annual outlooks.

Last week Goldman Sachs stepped away from the herd, shaving its earnings expectations for the S&P 500 for 2015, 2016 and 2017, citing energy as "the leading driver of our reduced profit outlook," in a note to clients on January 7.

Deutsche Bank cut its 2015 S&P 500 earnings forecasts on Monday

"Since publishing our 2016 outlook report in early December, many macro drivers of S&P EPS have deteriorated further," Deutsche Bank analysts wrote in a note on Monday. "In particular, oil prices legged down again, key currencies fell further and U.S. industrial activity continues to contract on weak capex and exports."

The German bank now expects fourth-quarter non-GAAP earnings for the S&P "to be down 2% y/y instead of flat and 2015 S&P EPS flat vs. 2014," the note read. As well, "these challenges are spilling" into the first quarter. The firm estimates first-quarter EPS for the S&P between $120 and $125, however that is highly dependent on oil prices.

An estimate of earnings per share of $125 for the Index assumes that oil prices average about $55 a barrel in in 2016. "This seemed reasonable several weeks ago, but now it doesn't," the note read. "A 25% rally in oil prices would result in only $40-45/bbl oil. This is still too low for Energy sector profits to be up in 2016."

"Moreover, the relationship between profits and the commodity price is now very uncertain. The estimate we made of [the energy sector's] profits up 15% is clearly too high now and until we see oil stabilize and get 4Q earnings reports from energy companies, we are simply unsure how much to cut our energy and thus overall 2016 S&P EPS estimate," Deutsche Bank said.

The analysts reiterated their "underweight" recommendation for the energy and industrials sectors, noting that "these conditions warrant a pause in Fed hikes to June." Instead, investors should stick with sectors that were leaders in 2015 such as health care and technology.

The stocks on this list are Deutsche Bank-covered tech stocks (one of the sectors the firm rates "overweight") with market caps above $10 billion; price-to-earnings multiples on 2015 earnings that are less than 22 times; and earnings growth for 2015 at greater than 0.

We've paired the list with ratings from TheStreet Ratings, TheStreet's proprietary ratings tool for another perspective. When you're done be sure to check out Bank of America's stock picks that will make big moves over the next three months.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equity market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year

 

 

1. Cisco Systems
1. Cisco Systems

(CSCO)
Industry: Information Technology/Communications Equipment
Market Cap: $127 billion
P/E on 2015 EPS: 14.6x
12-Month Total Return: -7%

Deutsche Bank Rating/Price Target: Buy/$35

"With the stock trading at under 10x 2017 consensus earnings, we believe the Street is valuing Cisco as an obsolete 'box-business' with downside to earnings estimates due to margin pressures and an uneven macro," said TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio. "We couldn't disagree more, and expect an upward re-rating in shares as the company communicates (and reveals through its results) the power of its accelerating mix shift toward software and recurring-service business segments. Cisco's pragmatic, balanced strategy of driving growth through a blend of organic investments, tuck-in acquisitions and partnerships should resonate well with long-term investors. We also like the 3.3%+ dividend yield and maintain our $32 target."

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2. Amphenol
2. Amphenol

Industry: Information Technology/Electronic Equipment, Instruments & Components
Market Cap: $14 billion
P/E on 2015 EPS: 19.8x
12-Month Total Return: -14%

Deutsche Bank Rating/Price Target: Buy/$60

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate AMPHENOL CORP (APH) as a Buy with a ratings score of A-. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity and good cash flow from operations. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • APH's revenue growth has slightly outpaced the industry average of 2.2%. Since the same quarter one year prior, revenues slightly increased by 7.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • AMPHENOL CORP has improved earnings per share by 14.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AMPHENOL CORP increased its bottom line by earning $2.22 versus $1.96 in the prior year. This year, the market expects an improvement in earnings ($2.39 versus $2.22).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Electronic Equipment, Instruments & Components industry average. The net income increased by 12.2% when compared to the same quarter one year prior, going from $182.21 million to $204.50 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, AMPHENOL CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $285.40 million or 27.35% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -8.94%.
  • You can view the full analysis from the report here: APH

3. Accenture
3. Accenture

Industry: Information Technology/IT Services
Market Cap: $64.7 billion
P/E on 2015 EPS: 20.6x
12-Month Total Return: 11.9%

Deutsche Bank Rating/Price Target: Buy/$117

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate ACCENTURE PLC as a Buy with a ratings score of A. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 26.9%. Since the same quarter one year prior, revenues slightly increased by 1.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • ACN's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.07, which illustrates the ability to avoid short-term cash problems.
  • ACCENTURE PLC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ACCENTURE PLC increased its bottom line by earning $4.76 versus $4.52 in the prior year. This year, the market expects an improvement in earnings ($5.21 versus $4.76).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to other companies in the IT Services industry and the overall market on the basis of return on equity, ACCENTURE PLC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
  • You can view the full analysis from the report here: ACN

4. Alliance Data Systems
4. Alliance Data Systems

Industry: Information Technology/IT Services
Market Cap: $15.4 billion
P/E on 2015 EPS: 17.4x
12-Month Total Return: -13.4%

Deutsche Bank Rating/Price Target: Buy/$341

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, (ADS) rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate ALLIANCE DATA SYSTEMS CORP ADS as a Buy with a ratings score of B. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 26.9%. Since the same quarter one year prior, revenues rose by 20.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $467.41 million or 22.94% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.86%.
  • 43.30% is the gross profit margin for ALLIANCE DATA SYSTEMS CORP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.08% trails the industry average.
  • ALLIANCE DATA SYSTEMS CORP's earnings per share declined by 24.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALLIANCE DATA SYSTEMS CORP increased its bottom line by earning $7.87 versus $7.43 in the prior year. This year, the market expects an improvement in earnings ($15.02 versus $7.87).
  • The debt-to-equity ratio is very high at 7.85 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, ADS has managed to keep a strong quick ratio of 2.23, which demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: ADS

 

5. Cognizant Technology Solutions
5. Cognizant Technology Solutions

Industry: Information Technology/IT Services
Market Cap: $33.8 billion
P/E on 2015 EPS: 18.6x
12-Month Total Return: 2.9%

Deutsche Bank Rating/Price Target: Buy/$69

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate COGNIZANT TECH SOLUTIONS (CTSH) as a Buy with a ratings score of B+. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, growth in earnings per share and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 26.9%. Since the same quarter one year prior, revenues rose by 23.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CTSH's debt-to-equity ratio is very low at 0.11 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.10, which clearly demonstrates the ability to cover short-term cash needs.
  • COGNIZANT TECH SOLUTIONS has improved earnings per share by 12.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COGNIZANT TECH SOLUTIONS increased its bottom line by earning $2.35 versus $2.02 in the prior year. This year, the market expects an improvement in earnings ($3.04 versus $2.35).
  • Net operating cash flow has increased to $817.90 million or 40.24% when compared to the same quarter last year. In addition, COGNIZANT TECH SOLUTIONS has also vastly surpassed the industry average cash flow growth rate of -12.86%.
  • You can view the full analysis from the report here: CTSH

6. Applied Materials
6. Applied Materials

Industry: Information Technology/Semiconductors & Semiconductor Equipment
Market Cap: $18.9 billion
P/E on 2015 EPS: 14.5x
12-Month Total Return: -30.8%

Deutsche Bank Rating/Price Target: Buy/$20

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate APPLIED MATERIALS INC (AMAT) as a Buy with a ratings score of B. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and attractive valuation levels. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.0%. Since the same quarter one year prior, revenues slightly increased by 4.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.60, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, AMAT has a quick ratio of 1.77, which demonstrates the ability of the company to cover short-term liquidity needs.
  • APPLIED MATERIALS INC has improved earnings per share by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, APPLIED MATERIALS INC increased its bottom line by earning $1.12 versus $0.87 in the prior year. This year, the market expects an improvement in earnings ($1.22 versus $1.12).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 31.3% when compared to the same quarter one year prior, rising from $256.00 million to $336.00 million.
  • You can view the full analysis from the report here: AMAT

 

7. Lam Research
7. Lam Research

Industry: Information Technology/Semiconductors & Semiconductor Equipment
Market Cap: $11 billion
P/E on 2015 EPS: 14.2x
12-Month Total Return: -11.3%

Deutsche Bank Rating/Price Target: Buy/$95

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate LAM RESEARCH CORP (LRCX) as a Buy with a ratings score of A+. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, compelling growth in net income and attractive valuation levels. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 9.0%. Since the same quarter one year prior, revenues rose by 38.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.43, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, LRCX has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.
  • LAM RESEARCH CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LAM RESEARCH CORP increased its bottom line by earning $3.70 versus $3.68 in the prior year. This year, the market expects an improvement in earnings ($6.01 versus $3.70).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 104.6% when compared to the same quarter one year prior, rising from $141.08 million to $288.68 million.
  • You can view the full analysis from the report here: LRCX

8. HP
8. HP

Industry: Information Technology/Technology Hardware, Storage & Peripherals
Market Cap: $18.9 billion
P/E on 2015 EPS: 6.2x
12-Month Total Return: -41.4%

Deutsche Bank Rating/Price Target: Buy/$16

TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate HP INC (HPQ) as a Buy with a ratings score of B-. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.89, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.92 is somewhat weak and could be cause for future problems.
  • The revenue fell significantly faster than the industry average of 25.6%. Since the same quarter one year prior, revenues slightly dropped by 9.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, HP INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • HPQ's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 38.95%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Looking ahead, the stock's sharp decline over the past year may have been what was needed in order to bring its value into alignment with its fundamentals and others in its industry.
  • You can view the full analysis from the report here: HPQ

 

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