JPMorgan's Top Tech Ideas For 2018: Buy Zebra, Short Garmin
Hardware stocks are well positioned to generate a "solid" return for investors in 2018, analysts at JPMorgan said in an industry-wide report.
Among the entire group, the firm's top picks include: Flex Ltd (NASDAQ: FLEX), NCR Corporation (NYSE: NCR), TTM Technologies, Inc. (NASDAQ: TTMI), and Zebra Technologies Corp. (NASDAQ: ZBRA).
On the other hand, the firm's top short ideas for 2018 include Cognex Corporation (NASDAQ: CGNX), Cree, Inc. (NASDAQ: CREE), and Garmin Ltd. (NASDAQ: GRMN)
The Analyst
JPMorgan's Paul Coster, Mark Strouse, and Paul Chung.
The Thesis
The case for being bullish on the hardware space can be attributed to President Donald Trump's tax reform, the analysts said, as tax reform will likely result in a elevated investment activity across all segments of hardware.
If investors were to single out sector within the hardware space, they should consider the electronic manufacturing solutions (EMS) segment, the analysts said. Companies in the EMS space are likely to benefit from the continued growth of the Internet of Things, mobility and cloud computing trends.
Why Zebra?
Zebra was the firm's best idea after the company proved itself to be a compelling play at the 2018 National Retail Federation (NRF) show. Specifically, the company is well positioned to take advantage of the Android upgrade cycle in mobile computer. The company will also benefit from technology investments in the retail vertical which accounts for around 30 percent of total sales.
The Street is modeling Zebra's revenue growth in 2018 to be just 3 percent, which happens to be around 100 to 200 basis points below the company's own target growth rate. Assuming the company can execute well in 2018 and "keep a lid on expenses," the company could generate "significant" earnings per share upside.
Why Not Garmin?
Garmin is heading into fiscal 2018 with a tough comparison in the Outdoor unit which performed well, especially the Fenix line, the analysts said. The Aviation and Outdoor units are expected to grow at a high single digit and the company expects its niche line of running watches to "do just fine."
The problem is that Garmin's prospects doesn't offer investors "much excitement on the top line" and a lack of any notable catalyst should prompt investors to remain sidelined.
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