Oppenheimer Institutional Strategy: Six IT Services Stocks to Buy with Big Upside

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The institutional portfolio strategy team at Oppenheimer use some very specific parameters when looking for stocks and sectors. Earnings revisions sentiment and alpha momentum can be used as tools from a contrarian or trend-following perspective toward identifying future periods of outperformance or underperformance. Valuation also serves as a check against excessive market exuberance, or conversely against undue despondency.

In a new research piece, the Oppenheimer analysts highlight the information technology (IT) service stocks as a sector with solid upside potential. They cited two months of notable improvements in analyst revisions breadth and now positive and rising alpha momentum. With positive earnings and domestic and global demand increasing, they have a list of top stocks to buy.

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Alliance Data Systems Corp. (ADS) has had a very strong year so far. The company and its combined businesses are North America's largest and most comprehensive provider of transaction-based, data-driven marketing and loyalty solutions serving large, consumer-based industries. The Thomson/First Call price target for the stock is set at $220.

Computer Sciences Corp. (CSC) posted huge first-quarter results, with net income up 279% over last year's numbers. The company has shifted its focus from infrastructure sales to more profitable software and services. It recently purchased big-data rival Infochimps. The stock also remains a top holding in hedge fund manager David Einhorn’s Greenlight Capital. The consensus price objective for the stock is $54. Investors are paid a 1.6% dividend.

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Fiserv Inc. (FISV) is a leading global technology provider serving the financial services industry, driving innovation in payments, processing services, risk and compliance, customer and channel management, and business insights and optimization. The company announced last month a 10 million share buyback, which is almost 8% of the outstanding shares. The consensus price target for the stock is $100.

International Business Machines Corp. (IBM) has become a services powerhouse since its exit from the personal computer business. The company operates in five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. This diverse array of business lines has generated huge profits and should continue to help the company grow long into the future. The consensus price target for the iconic company is $217.50. Investors are paid a 2.1% dividend.

MasterCard Inc. (MA) has been an investing home run. The Untied States accounts for 39% of MasterCard's total revenue and debit card accounts for about 50% of the U.S. market's total gross dollar volume (GDV), which is the dollar amount of purchases made by MasterCard's customers. Analysts expect MasterCard to maintain the GDV growth through fiscal 2013. The consensus price target for the stock is $695. Investors are paid a small 0.4% dividend. MasterCard was one of the highlighted stocks in our recent story on top stocks that are candidates for a stock split.

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Visa Inc. (NYSE: V) is another top credit card stock investors can look to buy. The company engages in the operation of retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities. A staggering 21 analysts across Wall Street rate the stock at Buy, and nobody has a Sell rating on it. The consensus price target for the stock is $212. Investors are paid a 0.8% dividend.

Internet commerce and transactions are becoming so ubiquitous, that the day of actually using paper money may be less of a science-fiction scenario after all. Companies that continue to expand IT services soon will address a growing emerging market consumer, which will drive international sales much higher. The time to own these stocks may be now. Any sort of meaningful market pullback may provide investors an excellent entry point.

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