With the Nasdaq composite coming off of its all-time highs after three days of violent sell-offs, investors are faced with a reckoning over where to put their cash to work as they ride the market's next leg up.
Even after the recent volatility, technology stocks have outperformed the S&P 500 year to date by almost 22 percentage points, Sameer Samana, a senior global market strategist at Wells Fargo Investment Institute, said on a Wednesday media call.
For investors who still love technology but balk at the frothy valuations commanded by some of the big names, Stifel has asked its equity-research analysts to unearth stocks affected by the COVID-19 pandemic but poised to grow as the economy recovers.
The 16 tech stocks, which are handpicked from the internet, media, and telecom and technology sectors, are considered either "undervalued" or "poised for growth," judging by the degree to which their valuations are reflected in current share prices, according to Stifel.
"These are names that may also benefit from easy comps in 2021, and/or an acceleration in growth due to the potential unleashing of pent up demand over the next 6-12 months," Stifel said in a Tuesday research note.
To arrive at their target prices for these stocks, the analysts used a discounted cash flow approach to estimate the value of the companies' future cash flows. They also accounted for macroeconomic and idiosyncratic risks that could impede the companies' growth trajectories.
The stocks are listed below.
1. Facebook
Ticker: FB
Price target: $282.73
Comment: "During the most challenging quarter for advertising budgets in over a decade, Facebook's double-digit y/y growth in 2Q underscored the strength and durability of the company's advertising engine, which is primarily driven by SMBs rather than large brands," analyst John Egbert said. "Although lingering privacy and ad market headwinds could modestly impact growth in 3Q / 4Q, we believe easing comps and Facebook's new tools for SMBs (like Shops and Checkout functionality, which rolled out broadly in August) position the company to return to 20%-plus y/y advertising growth in FY 2021."
Source: Stifel
2. Snap
Ticker: SNAP
Price target:$22.44
Comment: "We continue to see a long runway for advertising growth ahead of Snap, with potential upside from emerging products like Minis, Maps, and Games," Egbert said. "Snap is also well-positioned to reach adj. EBITDA breakeven in FY 2021, which could further broaden its investor appeal."
Source: Stifel
3. The RealReal
Ticker: REAL
Price target: $15.26
Comment: "With shelter-in-place orders lifted and capacity constraints resolved, we see a clear path back to positive GMV growth supported by the successful transition to virtual consignment, the reopening of the company's stores, and the ongoing return to normalcy in several of The RealReal's key markets," analyst Scott Devitt said.
"As supply headwinds continue to subside in the coming quarters, we believe the company is well positioned to return to pre-COVID growth rates in 2021," he added.
Source: Stifel
4. Autodesk
Ticker: ADSK
Price target: $233.88
Comment: "Despite Autodesk's more cyclically-exposed customer-base, we remind readers that Autodesk today is not the same company that it was during the Great Recession, given: 1) a significantly higher recurring revenue mix at about 95% (vs. roughly 40% in FY10); 2) customers today under subscription must continue to pay or else they can no longer use the product (unlike in 2009 when customers could stop paying maintenance yet continue to use the software); and 3) the increasingly strategic nature of BIM across the construction life cycle," analyst Adam Borg said.
Source: Stifel
5. Entegris
Ticker: ENTG
Price target: $66.54
Comment: "We believe Entegris is well positioned for above-average growth, given the increasing capital intensity for both materials-based manufacturing and contamination control. We believe materials intensity continues to increase in next-generation manufacturing across all device segments, and this will drive above-average growth in Entegris' materials business," analyst Patrick Ho said.
"We also believe contamination control needs are also increasing, driving more demand for Entegris' solutions on this front. We believe this sustainable growth outlook differentiates the company from many of its peers and believe additional upside to the stock price is still available even after the recent uptick post June quarter earnings," he added.
Source: Stifel
6. Flex International
Ticker: FLEX
Price target: $10.68
Comment: "Although Flex faces near-term uncertainty and demand headwinds, along with most of its suppliers and customers, we see no change to our positive long-term thesis, and highlight improving comps as the company exits FY21 (March)," analyst Matthew Sheerin said.
"The stock currently trades at about 9x forward P/E (NTM), versus a five-year average of approximately 10x, or about 5.5x forward EV/EBITDA (NTM), versus a five-year average of approximately 6.0x," he added.
Source: Stifel
7. Infinera Corp.
Ticker: INFN
Price target: $6.28
Comment: "With the launch of the 800G platform imminent over the next few months, we believe Infinera has both a short- and long-term opportunity to take share in a highly specialized market with few viable competitors," analyst Tore Svanberg said.
"Furthermore, these near-term opportunities in 600G and 800G carry better margin profiles than prior generations of optical equipment, which should drive significant gross and operating margin leverage, and therefore improved earnings power as the products fully ramp over the next 12-24 months," he added.
Source: Stifel
8. Inphi Corp.
Ticker: IPHI
Price target: $106.32
Comment: "We believe IPHI is poised for growth based on its technology leadership across all three key optical technologies (PAM-4, Coherent, and 400ZR/ZR+) as well as other medium-term drivers, including: (1) emergence of 400ZR/ZR+ as key inter-connect DC technology; (2) cloud spending ramps from hyperscale customers for PAM-4 technology; (3) current upgrade cycle in data center and LH/Metro markets (including 5G optical backhaul; and (4) outsourcing trends toward merchant suppliers as DSP requirements increase cost/complexity/design difficult," Svanberg said.
Source: Stifel
9. MaxLinear
Ticker: MXL
Price target: $22.56
Comment: "With the close of Intel Home Gateway Platform division acquisition, we believe the deal unambiguously establishes MXL as a leading high performance semiconductor vendor to the cable gateway markets and infrastructure markets, with three near-term growth drivers: PAM-4 DSPs in data centers, 5G Massive MIMO radio in 5G base stations, and WiFi 6 across a wide range of applications," Svanberg said.
Source: Stifel
10. MongoDB
Ticker: MDB
Price target: $214.51
Comment: "Despite an uncertain macro backdrop, new customer engagement was strong, with MongoDB delivering another record quarter of organic new EA and Atlas customer additions," analyst Brad Reback said.
"Additionally, MongoDB, with its market leading NoSQL document database technology, stands to gain significant share in the $50 billion-plus transactional database market in coming years. Given this backdrop, we expect MongoDB to beat conservative guidance and deliver healthy double-digit recurring revenue growth (35%-plus) and demonstrate improving profitability for years to come," he added.
Source: Stifel
11. Pros Holdings
Ticker: PRO
Price target: $36.23
Comment: "PROS has been one of hardest hit stocks in our space this year due to its airline industry exposure. In talks with management, the company remains optimistic that the company's solution is sticky and will continue to be an integral part of customer spending," analyst Tom Roderick said.
"The abrupt drop off in new business bookings in 2020 should provide easier comps in 2021 as demand increases. We are confident in PROS' ability to remain an important partner to the airline industry on the other side of COVID-19 as business and leisure travel resumes," Roderick added.
Source: Stifel
12. PTC
Ticker: PTC
Price target: $87.69
Comment: "While industrial companies are facing headwinds as they focus on keeping the lights on and ensuring continuity of ongoing operations, PTC's vertically integrated stacking, which combines the aforementioned technologies, is becoming increasingly important, in our view, to help organizations reduce time to market, improve product quality, reduce waste, enable remote collaboration/maintenance, and create innovative new product designs," Borg said.
"We also remind readers that industrial design software has been one of the last areas to move to the cloud, given security, latency, data governance, and inertia/product stickiness, and we expect the pandemic to help accelerate the adoption of cloud-based CAD in coming years. Net/net, we believe PTC remains very well positioned across these opportunities and is poised to drive low double-digit ACV growth and improving margin and free cash flow generation in coming years," Borg added.
Source: Stifel
13. Switch
Ticker: SWCH
Price target: $15.87
Comment: "Despite the above-market performance of SWCH (year to date: SWCH +6.6% vs. S&P 500 +6.1%), we see further upside and opportunity for the company to drive elevated growth over the next few years," analyst Erik Rasmussen said.
"We are estimating strong top-line and adj. EBITDA growth in 2020 (+11.8% y/y and +12.3% y/y, respectively) with sustained momentum in 2021 (2019-2021 CAGR: Revenue: +11.8%, adj. EBITDA: +11.7%), driven by existing strength within the current installed customer base and increased enterprise adoption driving the next phase of growth," Rasmussen added.
Source: Stifel
14. Tabula Rasa HealthCare
Ticker: TRHC
Price target: $50.08
Comment: "Although the pandemic is negatively impacting 2020 growth, it also highlights the need for their services, which help keep the most vulnerable segments of the population healthy by insuring payors, providers and pharmacists have the proper tools to administer drug therapies and monitor usage," analyst David Grossman said.
"TRHC will benefit from $15 million (5% tailwind) of revenue pushed from 2020 to 2021 due to COVID-19 related issues, which should set up for a strong reacceleration of organic growth," Grossman added.
Source: Stifel
15. TTM Technologies
Ticker: TTMI
Price target: $11.23
Comment: "Although the auto market outlook remains tough in the near term, continued content gains, new program wins, as well as the eventual market recovery will translate favorably to TTM's bottom line," Sheerin said.
"The timing of demand still remains uncertain, but we expect margins to improve over the coming quarters on better mix as well as benefits from TTM's prudent cost-cutting programs. With shares trading at approximately 9.0x our CY21E EPS, we believe the market has not fully priced in the newly transformed company's favorable end market exposure and pruned capital structure," he added.
Source: Stifel
16. Workiva
Ticker: WK
Price target: $55.15
Comment: "Workiva has remained fundamentally strong in the face of COVID-19, while strategically positioning itself for multiple growth opportunities in the future," Roderick said. "The company has the potential to experience accelerated growth as a result of the implementation of the upcoming ESEF ESMA mandate, increased demand from Global Statutory Reporting, and customers adopting the wData platform. Management remains confident that business has returned to pre-COVID levels and that there will be greater visibility going forward."
Source: Stifel