The Dow Jones Industrial Average’s recent gain has Wall Street taking notice. Despite some shakiness in the last five days, the index which contains 30 American blue chip stocks, has been outpacing the NASDAQ in the last month. The Dow has climbed 4% compared to the NASDAQ’s 2% gain over the same time period.
Bearing this in mind, we used TipRanks’ Stock Comparison tool to see how 3 of the index’s tech stocks stack up against each other based on analyst consensus and upside potential.
Let’s get started.
Its Azure cloud gives MSFT the advantage over its competitors as it’s the only cloud that extends to the edge, spanning identity, management and security. Azure is also the most open cloud, with the company expanding its partnerships with VMware (VMW), Oracle (ORCL) and Red Hat during Q4 2019.
Morgan Stanley’s Keith Weiss believes MSFT can achieve “durable double digit growth based on the expansive Azure opportunity”. The five-star analyst also deems the company as the “best positioned name in tech for the emerging Hybrid Cloud architectures”. This is evidenced by the commercial cloud segment’s gross margin expansion to 63% in the most recent quarter.
Adding to the good news, the company announced on September 19 that it was increasing its dividend by 11% to $0.51 per share and agreed to a maximum of $40 billion of buybacks. Its dividend yield is now at 1.48%.
Based on all of the above factors, Weiss maintains his bullish thesis. On September 23, he reiterated his Buy rating and $155 price target, indicating 13% upside potential.
The rest of Wall Street mirrors the analyst’s sentiment. With 22 Buy ratings compared to 1 Hold and 1 Sell, the word on the Street is that MSFT is a ‘Strong Buy’. Its $153 average price target suggests 12% upside potential.
Some investors have expressed concerns that 5G won’t be enough to revive Apple’s (AAPL- Get Report) declining iPhone sales. However, several analysts believe that 5G as well as its new services are capable of driving even more gains on top of its 38% year-to-date growth.
While iPhones aren’t expected to be equipped with 5G capabilities until 2020, the new technology could drive substantial upside for AAPL. According to the consensus estimate, 5G iPhone sales could reach 190 million in 2021. That being said, Jefferies analyst Kyle McNealy believes this figure should be much higher with his estimates putting sales at 208 million units. This prompted him to initiate coverage with a Buy and set a $260 price target on September 24. He thinks that shares could surge 19% in the next twelve months.
It should be noted that AAPL still has a lot going for it even before the arrival of 5G iPhones. Based on a survey conducted by Piper Jaffray’s Michael Olson, there’s strong demand for lower priced phone models. This is good news for the company as Apple just announced on September 10 that it cut the price tag for its iPhone 11 model. On the same day, the tech giant launched a revamped smart watch and broke the news that its Apple TV+ streaming service would cost much less than Disney’s (DIS) and Netflix’s (NFLX).
“While FY20 will prove to be a transition year for iPhone ahead of 5G devices coming late next year as consumers buy less high-end models, as long as services revenue and non-iPhone devices continue to perform well, this should tide investors over until anticipation for 5G iPhones intensifies,” Olson explained. As a result, the five-star analyst reiterated his Buy rating and $243 price target on September 23. His price target reflects his confidence in AAPL’s ability to gain 12% in the next twelve months.
Wall Street is more cautious when it comes to AAPL. With 17 Buy ratings, 14 Holds and 2 Sells assigned in the last three months, the Dow stock is a ‘Moderate Buy’. Given its already substantial year-to-date growth, its $225 average price target implies 3% upside potential.
Cisco Systems Inc.
The last of the Dow tech stocks on our list is considered to be somewhat underappreciated by investors. Nonetheless, Cisco (CSCO- Get Report) could see shares surge on top of its 13% year-to-date gain thanks to 5G.
While it’s known as a networking hardware and telecommunications technology producer, CSCO is one of the many companies that wants to make a name for itself as a key player in the 5G space. Its 5G PowerX provides users with an open, hyper-programmable architecture to transform a multivendor or multidomain network into a unified system. This architecture makes it easier to manage bandwidth, enable network control for applications and provide network topology support.
The company has also demonstrated progress in its efforts to shift towards a more free-cash-flow-based and predictable business model. Not to mention CSCO offers investors a dividend yield of 2.85% and an annualized payout of $1.40.
“The transition CSCO is undergoing merits investors focusing more on a FCF-based valuation vs. traditional price-to-earnings approach,” Evercore ISI analyst Amit Daryanani commented. He also added that his bullish stance can be attributed to CSCO’s ability to support the bandwidth requirements with an incremental approach to 5G technologies. As a result, the five-star analyst initiated coverage with a Buy and set a $60 price target on September 11. He thinks share prices could jump 22% over the next twelve months.
All in all, Wall Street is optimistic about CSCO. The consensus among analysts is that it’s a ‘Moderate Buy’, with CSCO receiving 16 Buy ratings vs 7 Holds over the last three months. Its $56 average price target suggests 15% upside potential.
The Bottom Line
There isn’t a clear winner when it comes to the 3 Dow tech stocks we mentioned. In terms of analyst consensus, MSFT comes out on top. However, CSCO surpasses MSFT and AAPL with respect to upside potential and beats MSFT's dividend yield.