Each year, MoneyShow.com asks the nation's leading newsletter advisers for their favorite stocks for the year ahead. In 30 years of conducting this survey, no other sector has been as consistently popular as technology -- and not surprisingly, tech again leads the pack this year.
Here are 12 tech-sector ideas from the MoneyShow's 35th annual Top Stock Picks report:
Stephen Leeb, The Complete Investor
T.J. Rodgers, who founded Cypress and until 2016 was its chairman, gets both credit and blame. Rodgers was a brilliant inventor with a prescient grasp of industry trends.
But he was less talented at leveraging his company's economic fortunes to his genius. His departure has left Cypress, still a relatively small company, with the ability and searing motivation to join the big leagues.
Before stepping down, Rodgers took two significant steps. One was merging with Spansion, a leader in automotive electronics. The other was purchasing the IoT portfolio from Broadcom (AVGO) . IoT is built around connecting a vast array of objects to one another.
Wireless connectors and electronics are critical to cars' infotainment systems and to connecting to outside services like GPS, traffic reports and the internet. Over the next five years, the electronic content of automobiles is expected to double.
A legacy of the Rodgers era is programmable systems on a chip (PSoC). These are "smart" microcontrollers that can be easily adapted for different devices, in contrast to microcontrollers dedicated to a particular set of devices. PSoCs also can be programmed to ward off cyber attacks.
Profits should grow considerably faster thanks to larger scale and a greater focus on operating efficiencies than in the Rodgers era. The balance sheet is solid. Exceptional growth prospects and the modest projected 2018 P/E result in the exceptionally low PEG of about 0.6. The projected 2018 free cash flow yield is over 7%. This is an exciting company whose upside potential sharply exceeds the risks.
Richard Moroney, Dow Theory Forecasts
Companies expect to boost their IT budgets in the coming year, a bullish signal for distributor Tech Data (TECD) . Since 2003, Goldman Sachs has surveyed the spending plans of chief information officers, and the December reading was its highest on record.
A wholesale distributor, Tech Data supplies hundreds of thousands of technology products, such as printer equipment, mobile devices, virtualization software and data-center servers.
In the past couple years Tech Data has revamped its business by selling off underperforming operations in South America in 2016 and completing a $2.67 billion deal in February to broaden its services portfolio.
October-quarter earnings per share were $2.00, up 39% and $0.08 above the consensus. Aided by acquisitions, revenue jumped 41% and topped expectations.
Gross profit margin rose nearly a percentage point to 5.8%. For the January quarter, management targets sales of $10.3 billion to $10.8 billion, bracketing the consensus of $10.6 billion.
Per-share profits should range from $3.35 to $3.65, up from $2.45 a year earlier. The midpoint of $3.50 per share is well above the consensus estimate of $3.38. Tech Data rallied on the solid showing and is rated "Best Buy."
Rob DeFrancesco, Tech-Stock Prospector
Exploding global data volumes and the transition to hybrid IT architectures leveraging the cloud are positive trends expected to continue to drive expansion at Talend (TLND) over the next year.
The company, a provider of data integration solutions, is on track to deliver 2018 top-line growth of at least 30%.
Data has become a major strategic differentiator for companies of all sizes. That's because there's so much intelligence lurking within corporate data -- everything from pricing trends to geographic demand patterns.
But all of that intelligence first needs to be unlocked. Data is useless unless it's properly pooled and organized before being analyzed.
A big challenge these days comes from the fact that corporate data is located everywhere, so it must first be corralled. Talend is all about helping companies connect and share data across security perimeters.
The company's 1,500+ customers rely on it to clean up, blend and manage data from a variety of sources -- including various databases and formats in the cloud and on-prem.
Released in the summer of 2017, Talend Data Fabric is optimized to manage data located across hybrid and multi-cloud environments. The solution offers a lot of convenience because it brings all integration requirements (including batch, streaming, real-time and cloud) onto a single platform.
Talend in 2017 saw strong new enterprise customer adoption, and there's no reason to think anything will change in 2018. The company now counts 26 of the Fortune 100 as customers.
Mike Cintolo, Cabot Growth Investor
Roku (ROKU) is a direct play on the cord-cutting and TV streaming movement. It makes over-the-top (OTT) TV streaming devices that allow people to access apps such as Netflix (NFLX) , Amazon (AMZN) and Hulu. It also developed an operating system that accesses the same apps, and which comes pre-installed on many smart TVs.
The company is pulling in tons of users by selling streaming devices and TVs (73% of total revenue and 33% of gross profit) at relatively little profit, then cashing in once they are users of the company's platform by selling advertising, content distribution services and audience data.
It's a potentially monster story given that Roku benefits from the general acceptance of TV streaming and the mega-movement toward dumping expensive cable packages, and isn't tied to one particular service. Analysts expect 2018 revenue growth to hit 30%, while red ink will likely be slashed from -$1.80 in 2017 to -$0.43 in 2018.
Yes, there's competition, and the stock is extraordinarily volatile. But if management continues to make the right moves, the potential is huge as millions more viewers use its platform.
Peter Mantas, Logos LP
Luxoft Holding (LXFT) is a top pick for 2018; there are very few small-cap enterprise technology stocks in a transition mode that generate significant amounts of cash.
The company is still reeling from its expiring contracts at UBS and Deutsche Bank but new growth in key sectors such as automotive, telecom and healthcare are propelling top-line growth, with revenue rising double digits year over year.
Operating margins have declined during its transition period but this will start to tick up over time off higher gross margins and increased revenue from these key markets and new strategic accounts.
The company spends very little on capex from sales and operating cash flow (around 3%) and continuously generates double-digits ROIC (return on invested capital) despite this transition.
Over the last quarter, the company has grown revenue by 16.07%, operating income by 13.66%, and EPS by 12.50% all the while the company is trading at 15.8 times forward earnings.
With the Fed expected to tighten quickly over the next couple of years, we also look for companies that have fallen out of favor that have very little debt and generate significant levels of cash with the expectation of paying down debt or tempering aggressive growth.
As such, we favor a stock like Luxoft, which has a zero level of debt. We think that this will play a huge advantage for 2018 and beyond.
Elizabeth Harrow, Schaeffer's Investment Research
Twitter (TWTR) completed a major restructuring in 2017, and the results so far appear to be promising. Critics have always said that the inability to monetize its massive user base is Twitter's biggest issue, but management appears to be figuring that out.
The microblogging company recently said advertisers have shown "significant interest" in its live streams (a content area that's rapidly expanding) and Twitter has partnered with high-profile media players like Bloomberg and Buzzfeed to create premium video offerings.
The heightened focus on delivering unique content, coupled with the introduction of longer, 280-character tweets, has resulted in higher engagement, according to user stats.
And it's worth pointing out that the newly streamlined Twitter, with no direct competitors in the social media space, remains an attractive potential takeover target for any number of larger rivals.
Meanwhile, out of 37 analysts tracking the stock, 32 have deemed Twitter a Hold or Sell (including one Strong Sell). Most brokerage firms have been so far slow to react to the stock's technical turnaround. Heading into 2018, additional upgrades could drive fresh waves of buying pressure.
Joseph Bonner, Argus Research
ServiceNow (NOW) provides scalable IT services management to enterprises through a subscription-based, software-as-a-service model.
The company markets to enterprises in industries ranging from financial services and consumer products to healthcare and technology. It provides value to customers by making IT services, which touch every area of a business from HR to field sales, more manageable and efficient.
This lowers a client's total cost of ownership through increased efficiency. The company is benefiting from an expanding addressable market, with enterprises increasingly relying on SaaS IT management, and the Now Platform expanding into adjacent services such as IT security and analytics.
The company is also experiencing expanding margins amid rising average contract value.
ServiceNow's offerings benefit from the secular trend away from the enterprise data center and toward the more easily scalable and cost-effective cloud software-as-a service model.
ServiceNow remains unprofitable on a GAAP basis but has posted non-GAAP earnings over the last eleven quarters. We see a solid revenue and profit outlook over the next few years underpinning valuation.
Linda McDonough, Profit Catalyst Alert
PayPal Holdings (PYPL) is morphing into a digital and mobile payments gatekeeper. Its software lets consumers fund accounts via credit, debit or bank accounts.
PayPal is winning over young customers with its Venmo service, a peer-to-peer mobile payment program. Millennials love Venmo. Using physical cash puzzles this generation which prefer to pay via their mobile phones.
Venmo is an app that sits on your phone. It links to your bank account, credit or debit card. To date, it is used mostly to pay another person. Opening Venmo up to retail payments next year will rev up PayPal's profits.
Industry experts estimate that Venmo has 10 million users. None of those users currently pay transaction fees. All the while, PayPal's basic business blossomed. After PayPal added debit and credit cards to payment choices, user growth rocketed. PayPal's total active account base grew 14% last quarter.
With over 200 million active accounts and close to 10 million Venmo users, the company has the scale to enjoy the network effect. PayPal also offers immediate access to Venmo funds for a $0.25 fee. This seems like a small amount to pay for the convenience. I expect this fee will generate significant revenue for the company.
Chuck Carlson, DRIP Investor
Intel (INTC) is the sort of "old tech" company that is gaining favor on Wall Street because of its pivot toward higher-growth markets in the technology space.
The company is still viewed primarily as a provider of chips for the PC market. That is the least sexy thing you can be when it comes to tech.
The reality, however, is that Intel is remaking itself. Wall Street is starting to catch on to the transformation at the company, but there is still plenty of upside remaining in these shares.
I look for the transformation to continue in 2018, which should be reflected in better growth rates and higher profits. The yield of 2.3% enhances the stock's total return.
The technical action has been quite impressive, as the stock recently broke out from a three-year trading range. Such meaningful breakouts tend to have legs, which should be reflected in market-beating returns in 2018.
The stock is a low-volatility way to play the high-volatility tech sector and should outperform the broad market in 2018. It is my top pick for conservative investors over the coming year. Disclosure: I own shares in Intel.
Jim Kelleher, Argus Research
Arista Networks (ANET) is bringing networking into the age of the cloud, which can bring huge efficiency and scale benefits to legacy networking environments.
Arista Networks is a leading supplier of cloud networking solutions for internet companies, cloud service providers and next-generation data centers. It generates the largest portion of its revenue from switching products that incorporate its Extensible Operating System (EOS) software.
While ANET currently mainly works with enterprise customers, there is a large barely tapped potential with service providers, ISPs and cloud titans.
Arista has experienced unforeseen demand for initial 100-gig routing and switching deployments. This has kept Arista's annual growth in the 50% range, compared with 20%-30% for other cloud-sensitive vendors.
The company is also experiencing continued sharp growth in overseas markets that are behind in cloud deployments, while also benefiting from its multi-vertical approach spanning cloud SP, carrier and enterprise networks.
We believe the company, which is battling Cisco Systems CSCO on multiple patent infringement allegations, is navigating this challenge well with a combination of workarounds, onshore manufacturing and legal wins.
Arista is in the habit of not just beating, but smashing expectations, as the company's next-generation solutions appeal to a fast-growing customer base. Revenue and EPS have been growing faster than share price and we believe the shares are attractively valued.
Benj Gallander, Contra the Herd
Quarterhill (QTRH) , which trades on both the Nasdaq and the Toronto exchange, has evolved from a one-trick patent troll pony to an enterprise that is now involved in the Internet of Things.
That expansion has seen revenues skyrocket from $93 million in 2016 to $86 million just last quarter, with the bottom line showing a fat profit of better than $26 million or $0.22 per share.
Meanwhile, the stock trades below US$2.00, as after having some mediocre years, it fell off the radar screen for many investors. Back in its heyday, this was an $80 stock.
In December, a new CEO was hired, Douglas Parker, who was senior vice-president, Corporate Development at Open Text (OTEX) . In that position, the company acquired about $2.5 billion of enterprises with over 3,500 employees.
Most importantly for investors, the stock price skyrocketed. It would not surprise at all to see Parker create tremendous value at Quarterhill given his track record. Prior to his arrival, the firm has already made a number of acquisitions in 2017.
A primary reason that this stock qualifies as a conservative pick is the dividend. Currently, it is north of 2 percent, a very decent payout in these low-interest times. If the bottom line stays reasonably fat, there is an excellent chance that it could double over the next few years.
Ingrid Hendershot, Hendershot Investments
The Priceline Group (PCLN) -- my top growth pick for 2018 -- launched its business in 1998 and has since expanded to include other strong travel-related brands, including Booking.com, agoda.com, rentalcars.com, Kayak and OpenTable.
Priceline.com offers leisure travelers primarily in the U.S. multiple ways to save on airline tickets, hotel rooms, car rentals, vacation packages and cruises. Booking.com is available in 42 languages and is the most profitable and largest online accommodation reservation service in the world. Agoda.com is a growing Asian online hotel reservation service.
Kayak, acquired in 2013, is a leading travel research site allowing people to easily compare hundreds of travel sites at once when searching for flights, hotels and rental cars. OpenTable, acquired in 2014, is a leading brand for booking online restaurant reservations.
In addition, the company is investing heavily in brand advertising to drive traffic to its websites while also investing in operating expenses to support technology investments and the continued strong growth of vacation rental properties on its platforms. Vacation rental listings jumped 58% to 816,000 properties.
Long-term investors should consider booking a reservation with The Priceline Group, a high-quality company with strong brands, strong cash flows and strong long-term growth. Buy.
(This column originally appeared on Jan. 12, on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other writers even earlier in the trading day.)
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