Amidst all the uncertainty gripping the markets, right now, one thing remains constant: Volatility.
The market pendulum is currently swinging wildly from one extreme to the other. However, in a recent note to clients, Wedbush analyst Daniel Ives notes that even in times of uncertainty, fundamentals remain key.
“Our investing philosophy in times of crisis is to do a bottoms up analysis and stress test the models of our top tech names/themes vs. a sensitivity in valuations. If stocks stick out with a green light based on this exercise and framework, we hand hold investors to buy these dips through this volatility, own the names for the other side of this panic, and see the forest through the trees on the fundamental drivers for the next decade in tech” Ives said.
With the help of TipRanks’ Stock Screener we got the low down on 3 tech names Ives believes 'stand out' at current levels. Digging further down, it appears all three currently boast a Strong Buy consensus rating from the Street. Let’s check them out.
Varonis Systems (VRNS)
One of the sectors Ives is most bullish on long-term is that of cyber security. Varonis is a pioneer in data security and analytics, and its offerings include everything from securing business data, systems management, data environments and file activity tracking.
Despite a 15% drop year-to-date, Varonis posted gains of 52% last year, following a series of impressive earnings reports. Ives believes there’s more to come and argues the “the results speak for themselves.”
While in its latest quarterly statement, the company posted modest beats on both top and bottom line, the all important ARR (annual recurring revenue) is where Varonis displayed its most impressive figures, the metric increasing by 62% year-over-year, handily above Street expectations.
Additionally, with Varonis currently transitioning to a subscription based model over perpetual licenses, the Street had high expectations, and was looking for subscriptions to be over 75% of total license revenue. Varonis beat the figure by posting an “eye popping” 82% subscription mix.
Ives said, “In the numerous software business model transitions we have seen play out over the past decade, we can never remember seeing a company so quickly ramp subscription revenues in the course of a few quarters, which speaks to a massive success story so far for the company (and its investors)... We believe Varonis’ platform offers a broad range of features and unique functionalities that differentiates it from traditional data security offerings and continues to be in the sweet spot of purchasing cycles which is starting to resonate with customers in our opinion heading into the next 12 to 18 months.”
Ives keeps his Outperform rating intact along with a $105 price target, which implies a possible upside of 94% in the coming months. (To watch Ives’ track record, click here)
The Street is on the Wedbush analyst’s side. 10 Buys and 2 Hold ratings given to the data security specialist over the last three months add up to a Strong Buy consensus rating. At $100.27, the upside potential comes in at a healthy 85%. (See Varonis stock analysis on TipRanks)
J2 Global Communications (JCOM)
Cloud computing is another sector Ives sees as expanding in the new decade, which brings us nicely to J2 Global. The Los Angeles based company provides internet services through two different segments: business cloud services and digital media.
J2’s share price is down by 18.5% year-to-date, but it’s worth bearing in mind that it notched an all-time-high on January 21. If things pan out as Ives forecasts, J2 Global will be reaching new heights in the year ahead.
Since launching its digital division in 2012 with the purchase of digital publisher Ziff Davis, J2 has been aggressive on the acquisition front, and the company now boasts a portfolio of over 40 brands, including PCMag, Mashable, and Everyday Health, amongst others.
Ives argues JCOM has been a “misunderstood story” by the Street. In the past, seen by many investors as a legacy fax player (e-Fax) and serial M&A machine, with low growth prospects and high margins. But the analyst maintains that with aggressive M&A, a disciplined cash flow machine, and a number of strategic initiatives possibly to come, JCOM could see further “multiple expansion and growth.”
Ives said, “We reiterate our belief that the merits of this story are gaining further steam under the leadership of CEO Vivek Shah as his digital media strategy continues to take hold on the heels of stronger subscription revenue and a continued improvement in display advertising. In our opinion the underlying acquisitive growth ($550 million convert adds to M&A war chest) strategy of diversifying its core services beyond fax into cloud and media is the key ingredient in its formula for success and will continue to be the linchpin going forward as evidenced again this quarter.”
Ives puts a $110 price target on JCOM to go along with his Outperform rating. Should the target be met over the next 12 months, investors stand to pocket a 67% gain.
What does the Street have in mind for the internet services provider? J2’s Strong Buy consensus rating breaks down into 6 Buy ratings and 2 Holds. The average price target comes in at $109.14, indicating potential upside of 67%. (See JCOM's price targets and analyst ratings on TipRanks)
Nuance Communications (NUAN)
Staying in cloud based services, we come to Nuance Communications, a company providing speech recognition software and artificial intelligence solutions. Despite the overall volatility in the markets, Nuance has been holding up well, among the few names to stay in the green in 2020.
The company’s latest quarterly statement was a strong one with beats across the board.
Revenue of $418.3 million beat the estimate by $12 million, while EPS of $0.27 beat the Street’s call by $0.03. Nuance’s all important cloud-based speech platform for physicians, Dragon Medical Cloud saw 51% revenue growth from the same period last year.
Nuance has also formed a partnership with Microsoft. In October the two announced an initiative to help reduce burnout among clinicians with the delivery of ambient clinical intelligence (ACI) technologies. According to the company’s press release these will “power the exam room of the future where clinical documentation writes itself.”
Ives believes that following a bumpy ride in the last decade, new CEO Mark Benjamin has engineered one of the more “impressive strategic and fundamental turnarounds” he has seen in decades.
Ives said, “We believe the underlying visibility increasing in the model from the key healthcare initiatives along with healthy profitability/cash flow lay the groundwork for a strategic organic growth reacceleration story over the coming years that should result in a further re-rating of the stock as the Street recognizes the "new and improved Nuance" story.”
Ives reiterates an Outperform on Nuance along with a $27 price target. Investors stand to take home a 82% gain, should the figure be met over the next 12 months.
Out on the Street, Nuance’s Strong Buy consensus rating is based solely on Buys - 5, in fact. The average price target is $23.80 and suggests the analysts see a further 59% added to the share price over the coming year. (See Nuance stock analysis at TipRanks)