Tech stocks are riding high.
Since the beginning of the bull market back in 2009, returns in the information technology sector have dwarfed the returns of the overall S&P 500 index. In that time, the Technology Select Sector SPDR (ticker: XLK) exchange-traded fund is up 519% compared to a 345% gain for the S&P 500. These strong returns have continued in 2019, with the XLK up 32% compared to just a 20% gain for the S&P. If tech stocks are going to continue to outperform, here are eight information technology stocks to buy, according to CFRA.
Apple is the world's most valuable company, but analyst Angelo Zino says there's plenty of upside left. Apple took a gamble with its margins when it lowered prices on its latest family of iPhones unveiled in September. But early checks on the iPhone market suggest initial demand for the lower-priced models is strong heading into the holiday season, especially in China. Zino says Apple is a cash flow machine with an impressive ecosystem and strong customer retention rates ahead of 5G network launches in 2020. CFRA has a "buy" rating and $265 price target for AAPL stock.
Microsoft Corp. (MSFT)
In addition to Apple, Microsoft is the world's only $1 trillion company. Analyst John Freeman says it's not too late for investors to get in on Microsoft. Microsoft may be the best example of a tech company that was on top during the dot-com boom of the late '90s that completely transformed and modernized its business to stay on top in 2019. Freeman estimates cloud services revenue will surpass 50% of Microsoft's total revenue for the first time in the fiscal fourth quarter. CFRA has a "buy" rating and $177 price target for MSFT stock.
Visa hasn't gotten much attention in the payments space in the past couple of years, with cryptocurrencies and digital payment companies PayPal Holdings (PYPL) and Square (SQ) grabbing most of the headlines. Meanwhile, Visa shares have quietly outperformed the overall tech sector by about 10% in the past year. Analyst Chris Kuiper says further penetration of smartphones and the rise of mobile banking in under-banked regions of the world in coming years will be major growth drivers for the digital payments market. CFRA has a "buy" rating and $200 price target for V stock.
Like Visa, Kuiper says Mastercard will benefit from a boom in digital and mobile payments in the next several years. Kuiper says Mastercard has several growth levers ahead, including international penetration, potential market share gains, prepaid cards and mobile payments. CFRA is projecting at least 14% annual revenue growth through 2021, with earnings before interest, taxes, depreciation and amortization margins expanding from 58% in 2016 to 63% by 2021. Mastercard is also aggressively repurchasing stock, helping to boost earnings per share. CFRA has a "buy" rating and $310 price target for MA stock.
Cisco Systems (CSCO)
Analyst Keith Snyder says Cisco should benefit from several growth trends, including increasing bandwidth consumption, a rapid rise in data center demand and the continuing transition of the business world to cloud networking. Snyder says Cisco has a pristine balance sheet and has plenty of financial flexibility for acquisitions, buybacks and dividend increases. He says Cisco's Duo buyout should help boost its security offering portfolio. Snyder projects revenue growth will increase from 1.9% in fiscal 2020 to 3.4% in fiscal 2021. CFRA has a "buy" rating and $55 price target for CSCO stock.
Freeman says Adobe is dominating the creative content software category, a position that should generate years of impressive growth. CFRA is forecasting 21% revenue growth and 25% earnings growth over the next three years, above Wall Street consensus estimates. Freeman says Adobe's transition to a subscription billing model has created an earnings tailwind, and growth in the number of global creative professionals should continue to drive long-term demand. Freeman says Adobe's "tethered cloud" model should also push operating margins to 45% in fiscal 2021. CFRA has a "buy" rating and $323 price target for ADBE stock.
Salesforce is a leading provider of on-demand customer relationship management services. Freeman says Salesforce is one of the most disruptive and innovative software companies in the world. Salesforce already has a leading share of the CRM market, but Freeman says there is still room for that share to grow given Salesforce's unmatched offerings. As Salesforce continues to integrate its more than 40 acquisitions over the past decade around its "Customer 360" model, Freeman says the distance between Salesforce and the competition will widen further. CFRA has a "buy" rating and $195 price target for CRM stock.
Unlike other tech stocks on this list, IBM has struggled to modernize its business and investors have paid the price. Shares are down 16% in the past five years, but analyst David Holt says IBM is finally about to turn a corner. Holt says currency headwinds and slumping legacy hardware sales have masked improvements in IBM's services business. He says IBM's Red Hat acquisition will weigh on earnings in the second half of 2019 but should be EPS-accruitive by the end of 2020. CFRA has a "buy" rating and $165 price target for IBM stock.
Top information technology stocks to buy:
-- Apple (AAPL)
-- Microsoft Corp. (MSFT)
-- Visa (V)
-- Mastercard (MA)
-- Cisco Systems (CSCO)
-- Adobe (ADBE)
-- Salesforce.com (CRM)
-- IBM (IBM)
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