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.
5. Intel
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).
4. Google
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.
3. Qualcomm
Company Profile: Qualcomm is a semiconductor company benefiting more than many rivals from sales to cell-phone and smartphone companies.
Potential Upside: 16 per cent based on the average analyst price target of $66.37
Analyst's Take: Thirty-five analysts, or 83 per cent of those following the stock, rate Qualcomm a "buy." These firms include FBR Capital Markets and Kaufman Bros. Another seven analysts say investors should hold on to shares of the chipmaker. No firm has a "sell" rating on the stock.
Canaccord Genuity analyst T. Michael Walkley rates Qualcomm a "buy" with a price target of $70, citing global smartphone sales and positive trends in average selling price.
"We maintain our belief Qualcomm is well-positioned to post strong earnings growth during [fiscal 2011 and 2012]due to stable royalty rates, strong tablet and smartphone sales, increasing market share for Qualcomm's integrated chipsets and accelerating 3G device sales in emerging markets such as China and India," Walkley wrote in a May 1 research note.
TheStreet Ratings has a "buy" rating on Qualcomm, which it has maintained since August 2010. The latest report highlights Qualcomm's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income."
Recent News: In late April, Qualcomm easily topped Wall Street's estimates for the fiscal second quarter, as revenue rose 45 per cent from the same period a year earlier. The chipmaker also lifted its guidance for fiscal 2011.
2. Oracle
Company Profile: Oracle develops database and applications software for businesses.
Potential Upside: 5 per cent based on the average analyst price target of $37.61
Analyst's Take: Oracle pulls in 35 "buy" ratings from Wall Street research firms, including Lazard Capital Markets and RBC Capital. Another eight analysts rate the stock a "hold," while one analyst says investors should sell the stock.
Bank of America/Merrill Lynch analyst Kash Rangan reiterated the firm's "buy" rating and $39 price target in late April after a meeting with Oracle's management team. Rangan noted strong opportunities for Oracle's newest database products, Exadata and Exalogic.
"Pipeline growth for these new products is accelerating, the company is in 'pull' mode as enthusiasm continues to build among prospects," Rangan wrote in the April 28 research note. "The constraint is how quickly can Oracle ramp salespeople."
TheStreet Ratings has a "buy" rating on Oracle, which it has maintained for more than two years. The latest report highlights Oracle's "robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity."
Recent News: On April 25, Oracle announced that Chief Financial Officer Jeff Epstein resigned, a position he held since August 2008. Oracle didn't provide a reason for Epstein's departure, only saying that Safra Catz, its president, will assume the additional CFO role on a permanent basis.
1. Apple
Company Profile: Apple is the consumer-electronics company best known for its iMac line of home computers as well as the iPod music player, iPhone handset and iPad tablet.
Potential Upside: 30 per cent based on the average analyst price target of $456.15
Analyst's Take: The stock of the iPad maker is the apple of Wall Street's eye, pulling in four dozen "buy" ratings from firms including Morgan Stanley and Goldman Sachs. More than 90 per cent of researchers following Apple say the stock is worth purchasing now. The five other analysts covering Apple rate the stock a "hold."
Apple has a home on Goldman Sachs' prestigious "Conviction Buy" list, and analyst Bill Shope raised forecasts on the company after it reported first-quarter financial results. Shope said the revisions were made "to remove some of our Japan-related supply conservatism and adjust estimates on significant iPhone upside."
"Although we still need to monitor Japan supply-chain risk closely, it appears that Apple's supply-chain clout is allowing it to avoid any material challenges," Shope wrote in the April 21 research note. In a later research note, he said Apple's recent listless share-price movement represented a buying opportunity for investors.
TheStreet Ratings has a "buy" rating on Apple, which it has maintained for more than two years. The latest report highlights Apple's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and impressive record of earnings per share growth."
Recent News: Apple found itself at the center of controversy after reports that iPhone software collects and tracks user data. "Apple is not tracking the location of your iPhone. Apple has never done so and has no plans to ever do so," Apple said in a press release, before the company would eventually release an update to the iOS software that cuts back on location tracking.