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All Contents © 2018The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| September 5, 2018
Tech stocks enjoyed a scorching summer. The technology-heavy Nasdaq Composite has just experienced its best August since 2000, climbing 5.7% in just one month. Heavyweights such as Apple (AAPL) and Amazon (AMZN) are responsible for propelling the index to new highs, with Apple climbing 19% in just a month. Both have now touched the vaunted $1 trillion-market-cap mark.
The key question now is: Are valuations beginning to look a little stretched?
Kevin O’Leary, chairman of O’Shares ETFs, believes the tech sector will post continued growth into the end of the year. Nonetheless, at this late stage in the game, you must be selective with your time and your money. One way to go about this is to turn to Wall Street’s top stock picks.
TipRanks’ market data has singled out seven “Strong Buy” tech stocks that have unanimous support from the Street’s best-performing analysts. In other words, over the past three months, the analysts with the strongest stock-picking track records have doled out nothing but buy-equivalent ratings. That’s telling.
Let’s take a closer look at these seven high-potential tech stocks now:
Data is as of Sept. 4, 2018.
Market value: $220.9 million
TipRanks consensus price target: $21.75 (46% upside potential)
TipRanks consensus rating: Strong Buy (See Details)
Asure Software (ASUR, $14.88) is a rapidly growing Texas-based software company out to help companies operate more efficiently across numerous tasks, from HR consulting to conference room scheduling and real estate optimization.
“The company’s consistent record of generating double-digit organic growth, large cross-selling potential and sound acquisition strategy make us optimistic about its long-term growth potential,” writes top Barrington Research analyst Vincent Colicchio (view Colicchio’s profile & recommendations).
True, the stock is actually off by double digits over the past three months. This could be simple profit taking, or it could be investor disappointment with second-quarter revenues, which were merely in line with consensus expectations. But the pros see recent weakness as a compelling buying opportunity.
“Despite liquidity issues, Asure’s strong growth potential should justify a significantly higher multiple,” Colicchio writes. He believes the stock looks “undervalued” right now and is modelling for prices to surge more than 65% in the next 12 months. Bear in mind, even with the recent pullback, shares are still up a whopping 150% on a three-year basis.
The stock has received four consecutive buy ratings in the last three months.
Market value: $523.2 million
TipRanks consensus price target: $6.17 (28% upside potential)
Don’t let LLNW’s sub-$5 price – often a sign of a troubled stock – fool you. Limelight Networks (LLNW, $4.82) is on the way up, with 180%-plus gains over the past two years, and more to offer.
Limelight has one of the world’s largest private global networks, enabling companies to bypass internet congestion and avoid security potholes. It also enables more responsive apps, higher quality video and consistent downloads.
Five-star Oppenheimer analyst Timothy Horan (view Horan’s profile & recommendations) is impressed by the company’s recent Q2 earnings report. LLNW achieved positive earnings for the first time as a public company, and operating free cash flow of $8 million was a $5 million beat.
“Robust top-line growth beat our Street-high revenue estimates by 60bps. The company has made great progress on product quality, which has enabled it to close the gap on pricing with competitors and drive up margins,” Horan writes. He spies a ‘unique buying opportunity’ as industry trends are improving, and the company is now moving past major headwinds (including patent litigation).
Four analysts have published buy ratings on the stock over the past few months, including top B. Riley FBR analyst Sameet Sinha adding the stock to the firm’s elite Alpha Generator List with a $6 price target.
Market value: $16.4 billion
TipRanks consensus price target: $230.30 (14% upside potential)
With no less than 10 recent buy ratings, there is no doubt that IAC/InterActiveCorp (IAC, $202.84) is one of Wall Street’s favorite tech stocks right now. IAC owns more than 150 brands and products including Daily Beast, Dictionary.com and Vimeo, not to mention brands like Tinder and Angie’s List via its stakes in Match Group (MTCH) and ANGI Homeservices (ANGI).
The company recently reported yet another blowout quarter of earnings. IAC’s Q2 was 4% above consensus on solid results from both Match Group and ANGI. The company also raised Q3 and full-year guidance, too. Tinder had a lot to do with all of that.
Post-results Aegis Capital analyst Victor Anthony (view Anthony’s profile & recommendations) reiterated his take on IAC as a “top small-mid cap pick.” He has now ramped up his price target from $200 to $240 (22% upside potential).
As Anthony sees it, IAC’s shares continue to trade at a discount even though it’s extremely clear that Angie is executing strongly. Match Group’s momentum is continuing; and the market is undervaluing IAC ex-Match/ANGI. He writes “This (valuation) is irrational, in our view, given that Vimeo alone is worth at least $1B.”
Moreover, as Oppenheimer’s Jason Helfstein points out: “The company has aggressively returned capital to shareholders through buybacks and dividends, and we expect this behavior to continue.”
Market value: $10.4 billion
TipRanks consensus price target: $45 (14% upside potential)
Canadian-based Open Text (OTEX, $39.36) is the largest independent provider of enterprise information management (EIM) software. It essentially helps organizations – most prominently Microsoft (MSFT) and Oracle (ORCL) – manage and share business information.
And with 8 recent analyst buy ratings, OTEX is certainly doing something right. Five-star RBC Capital analyst Paul Treiber (view Treiber’s profile & recommendations) has just edged up his price target on the stock from $44 to $45 (15% upside potential).
He sees an attractive risk/reward proposition in shares right now, especially given the company’s impressive acquisition history. Since the company’s 1991 inception, OpenText has deployed roughly $6 billion in capital on acquisitions. Over that time, free cash flow per share has increased by more than 17% compounded. “We expect OpenText to continue to deploy capital on acquisitions going forward,” Treiber writes.
In addition to creating value through acquisitions, this analyst also lists further margin expansion and increasing FCF as potential share catalysts.
Market value: $2.4 billion
TipRanks consensus price target: $48.50 (15% upside potential)
Email is the No. 1 application used to communicate. But according to Mimecast (MINE, $42.01), it’s also the No. 1 opportunity for cyberattacks. Through a single cloud-based service, MIME provides next-gen cyber resilience for emails including Microsoft’s Office 365.
The company is demonstrating strong momentum so9 far. Not only did it log several impressive customer wins in its fiscal first quarter, but total customer numbers are also expanding rapidly (up 900 to ~31,300 in the quarter). This came with a savvy expansion of its technological capabilities. In July, MIME snapped up both Solebit LABS, a provider of threat detection technology, and Ataata, a Maryland-based provider of security awareness training.
Top Oppenheimer analyst Shaul Eyal (view Eyal’s profile & recommendations) believes that Mimecast is set to deliver double-digit revenue growth rates over the coming years. He makes this assertion “based on the strong demand for the company’s offerings and the rising importance of both email and security for enterprises.”
Six analysts have published Buy ratings on MIME in the last three months.
Market value: $4.9 billion
TipRanks consensus price target: $99.33 (10% upside potential)
Online education platform 2U Inc. (TWOU, $90.03) is an intriguing tech stock pick. Shares are already up by a whopping 78% in the last year, and top Oppenheimer analyst Brian Schwartz (view Schwartz’s profile & recommendations) sees a long growth runway ahead. He is one of five analysts who have published bullish calls on this stock in the last three months.
Don’t be disturbed by the stock’s recent run-up, Schwartz says: “While 2U’s valuation currently reflects a meaningfully successful business trajectory over the (forward 12 months), we believe TWOU should be a core long-term holding as the most-dominant and best-positioned vendor for the future within higher education.”
He believes that 2U has “deep structural advantages,” most notably that it already works with many prestigious universities. This puts TWOU in prime place for the sweeping industry changes towards the digital channel for student sourcing, knowledge creation, and learning over the next decade
Add in 18 straight beat-and-raise quarters (including second-quarter revenue up 50% year-over-year), and you can see why this company is among the top tech stocks to buy right now – at least according to Wall Street’s pros.
Market value: $769.2 million
TipRanks consensus price target: $40.40 (12% upside potential)
You could do a lot worse than cloud solutions stock Upland Software (UPLD, $36.00) which has the backing of TipRanks No. 1 analyst. Canaccord Genuity’s Richard Davis (view Davis’ profile & recommendations) has netted him an impressive 85% success rate and 40% average return per rating. And now he is betting on Uplands with a Buy rating and $40 price target.
He reiterated his bullish call following the company’s earnings report, writing, “Our opinion on UPLD has not changed … this is an attractive stock for investors who are intrigued by the opportunity to participate in a consolidation story in a sector that is ripe for doing so. BUY.”
Indeed, Upland has been busy recently with six acquisitions over the last six quarters. Fortunately, management has now built a “well-oiled” integration machine. And fueled by this aggressive M&A, the company is aiming for $250 million in revenue and 40% EBITDA margins.
The stock has scored five back-to-back buy ratings from the Street in the last three months.
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