Last week was grim for the stock market, including the worst single-day loss since March, but the trend lines are turning upwards again this week. Treasury Secretary Mnuchin’s statement that the US cannot shut down its economy again gave investors a boost of confidence – and this week’s May retail sales report gave an even bigger one.
This is the good news background lending credence a recent report from Morgan Stanley, on finding the advantageous tech position for a V-shaped recovery. The report, lead-authored by 5-star analyst Joseph Moore, details the strengths and weaknesses of the tech sector as companies respond to the economic recovery and the resumption of a more normal consumer activity. Moore pinpoints three tech stocks that are likely to gain – and upgrades their ratings in consequence.
We’ve used the TipRanks database to pull the details on these three tech stocks, to find out what makes them such compelling opportunities.
Qualcomm, Inc. (QCOM)
Qualcomm has a clear path forward as retail markets reopen. The semiconductor chip maker is heavily invested in both the smartphone market and the burgeoning 5G rollout, and both sectors are expected to expand dramatically with the resumption of consumer demand. The May retail numbers are relevant on this point, indicating that consumers are willing to spend and have the resources to do so.
The company’s forward prospects were blurred slightly by underperformance in 1H20 – but that underperformance should be taken with some careful skepticism. QCOM’s calendar fourth quarter is historically the company’s strongest, so declines in Q1 and Q2 were to be expected even without the coronavirus turndown. In the event, however, QCOM overperformed in both quarters, beating EPS and revenue expectations. Q1 saw $5.08 billion at the top line; Q2 saw an improvement to $5.22 billion.
Reviewing QCOM shares for Morgan Stanley, analyst James Faucette upgrades the stock to Buy from Neutral, and supports his rating with a $102 price target. Faucette’s target implies a healthy upside of 13% for the stock. (To watch Faucette’s track record, click here)
In his comments on QCOM, Faucette writes, “We see smartphone demand improving through the year, with a rising average selling price as we transition to 5G; volumes down 30% y/y in 2q should be a good entry point as we see consumption rebounding quickly.”
Overall, the Moderate Buy analyst consensus rating on QCOM still reflects Wall Street’s recent caution in the markets. The 19 reviews on the stock break down as 11 Buys, 5 Holds, and 3 Sells. Shares are selling for $89.52, and the $91 average price target suggests a minimal upside of nearly 2%. (See Qualcomm stock analysis on TipRanks)
Qorvo, Inc. (QRVO)
Next on our list, Qorvo, is another chip maker. This company has a strong reputation and niche in the wifi segment, where it provides integrated circuits for networking communications hardware. Countless PCs, laptops, tablets, and smartphones use Qorvo chips, and the company’s products are important in older applications such as cordless phones and industrial radio.
Qorvo’s solid niche position in the essential wireless tech industry helped insulate the stock from the economic turmoil of Q1 and Q2. Yes, the company saw revenues and earnings slip in both quarters, but in both cases the results were within the expectations of historical performance patterns. Calendar Q4 is QRVO’s strongest, and the company beat the forecasts in both calendar Q1 and Q2.
The most recent report, for the company’s fiscal fourth quarter, shows the picture. QRVO saw revenue of $787.8 million, up 15% year-over-year, while the EPS of $1.57 beat the $1.32 forecast by a wide margin. QRVO’s share price reflects the earnings and market position. The stock has recovered from the February-March dip, and is trading up 8% from pre-bear levels.
Morgan Stanley’s Craig Hettenbach, rated 5-stars in the TipRanks database, writes of QRVO: “We upgrade QRVO to Overweight on a recovery in mobile in 2H and expectation of further acceleration in 2021… We expect a cyclical rebound in smartphones, with 5G adoption adding another kicker as RF $ content should increase more than $5 per phone or over 30%…”
Hettenbach supports his new Buy rating with a $130 that implies a one-year upside of 15% for the stock. (To watch Hettenback’s track record, click here)
QRVO shares have a Strong Buy rating from the analyst consensus. Wall Street’s reviewers have posted 16 analyses of the stock, breaking down to 12 Buys and 4 Holds. Shares are trading now at $113.26, and the $119.85 average price target suggests the stock has room for a modest 6% growth. (See Qorvo stock analysis on TipRanks)
Lam Research (LRCX)
Last on our list of Morgan Stanley recommendations is Lam Research, a company with an interesting niche in the semiconductor industry. They don’t make chips; rather, they specialize in wafer fabrication, the preparation of the silicon wafer from which chips are produced. Lam primary operations are the design, manufacture, and marketing of processing equipment used in front-end wafer processing. The company saw $9.7 billion in revenue last year, and netted $2.2 billion in income.
For the most recent quarter, the company’s fiscal third, LRCX reported strong results. $2.5 billion in revenue, 46% gross margins, and $3.88 EPS left management feeling confident.
Joseph Moore wrote the Morgan Stanley review on LRCX, saying, “…buying these stocks near the bottom of the macroeconomic cycle requires looking through some uncertainty, and favor Lam over peers given the higher exposure to memory – particularly NAND – where we see trailing spending as well below normal, improving from here…”
Moore upgrades LRCX from Neutral to Buy, and raises his price target from $253 to $334. His new target implies an upside of 9.3% for the coming year. (To watch Moore’s track record, click here)
LRCX has 21 recent analyst reviews, including 17 Buys and only 4 Holds. It’s the most expensive stock on this list, currently selling for $312.65. The average price target, at $309.86, indicates that Wall Street generally is more cautious than the Morgan Stanley analyst team. (See Lam Research’s stock stock-price forecast on TipRanks)
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