Are technology stocks the darlings of Wall Street again a decade after the dot-com bubble burst? If analysts' recommendations are a guide, the answer is "yes."
Apple, Google and other tech stocks are the most adored by Wall Street analysts. Based on recommendations from researchers, they take the top five ranks with no fewer than 35 "buy" ratings each. While many have a larger number of analysts following them, tech still ranks higher than energy names such as Halliburton and Schlumberger .
Many of the top-ranked stocks earned their "buy" ratings after showing sustained growth in revenue and earnings over the past few quarters. But tech stocks have also become favoured recently as mergers and initial public offerings are announced at a breakneck pace. According to Renaissance Capital's IPO Home, there have been 19 technology IPOs this year, the most of any sector.
And on the M&A front, more than $94-billion (U.S.) in tech deals have been announced this year, already the highest total since 2000, according to Dealogic. Most recently, Microsoft revealed the $8.5-billion acquisition of video-software company Skype.
Still, some investors have been tentative about technology stocks. According to data provided by Morningstar, inflows to tech-centric U.S. mutual funds were $416-million in January and $225-million in February. That was followed by two months of outflows of $606-million and $259-million, respectively, in March and April.
Analysts, bullish on companies' order books and wide profit margins, put tech stocks at the top of their list. Several other technology companies round out the list of the most highly recommended stocks. EMC , Hewlett-Packard , Salesforce.com , Broadcom , Juniper Networks and Microsoft all rank in top 20.
Five tech heavyweights, in particular, are favoured by Wall Street. The five that rank highest are arranged below in order of total "buy" ratings.
Company Profile: Intel is the world's largest chipmaker.
Potential Upside: 12 per cent based on the average analyst price target of $26.08
Analyst's Take: Intel garners 35 "buy" ratings from Wall Street firms, including Wells Fargo Securities and FBR Capital Markets. Fifteen other analysts have a "hold" rating on the stock, while another three say investors should dump shares.
Credit Suisse analyst John Pitzer, who rates Intel as "outperform" with a $28 price target, says the company "is better positioned to take advantage and prosper in non-traditional markets," particularly in servers and tablet devices and, to a lesser extent, smartphones.
TheStreet Ratings has a "buy" rating on Intel, which it has maintained since October 2010. The latest report highlights Intel's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and impressive record of earnings per share growth."
Recent News: On May 11, Intel raised its dividend payment by 16 per cent to 21 cents, the second increase in six months. After the dividend hike, Intel's stock will yield more (3.61 per cent) than the 10-year U.S. Treasury (3.16 per cent).
Company Profile: Google hosts two-thirds of all searches on the Internet. While the company's strength is indexing Web sites and delivering online ads, Google has focused on operating systems and software, including the Android platform and Chrome browser.
Potential Upside: 31 per cent based on the average analyst price target of $711.80
Analyst's Take: Thirty-five analysts, or 83 per cent of those following Google, recommend that investors buy the stock. Most recently, Pacific Crest Securities and Cowen & Co. maintained "outperform" ratings on Google shares. Another seven researchers rate Google as a "hold." No research firm has a "sell" rating on the stock. Even so, Google shares have vastly underperformed the market this year.
Jefferies analyst Youssef Squali has a "buy" rating and a whopping $800 price target on Google. Citing the most recent data from comScore, Squali noted that Google is maintaining its wide lead in search market share in April at 65 per cent, compared with 16 per cent for Yahoo and 14 per cent for Microsoft's Bing.
TheStreet Ratings has a "buy" rating on Google, which it has maintained for two years. The latest report highlights Google's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, impressive record of earnings per share growth and good cash flow from operations."
Recent News: Along with Apple, Google executives appeared before the Senate earlier this week to testify about their collection of consumer data from handsets running the Android operating system. Also on Tuesday, Google disclosed that the Justice Department is investigating the company's advertising practices.
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