Wall Street is bullish on tech again, naming stocks to buy
Technology stocks have been in a funk for much of this year, as investors steered away from growth sectors in a bearish market. But some Wall Street banks have begun to make the case for buying into technology again. Citi in an Oct. 7 note said it upgraded Technology to Overweight from a “long-term” Underweight rating, as it shifts toward a preference for growth stocks. Similarly, Morgan Stanley said it was a “double whammy”[ads1]; to upgrade EU tech stocks. “With investors likely to move back to growth stocks as and when the Fed begins to moderate its rate hikes, we double EU Tech from underweight to overweight,” the bank’s analysts wrote in an Oct. 7 note. Meanwhile, in an Oct. 3 note, JPMorgan said: “After Value had another strong period in August/September, we believe the growth style may pick up again, and the technology sector in particular. This is especially so if yields do not move further higher from here.” Growth stocks, such as the technology giants, are particularly sensitive to rising prices as their valuations are based on future growth and cash flow. When interest rates rise, the value of future earnings is reduced. Yields have rallied recently, but fell before reappearing on the US jobs report last week. Software, IT hardware Citi said it upgraded these technology sectors in particular: software and services, as well as technical hardware. It noted that software firms have seen robust earnings per share, sales per share and cash flow per share. It listed these stocks as its top picks in these sectors: IT hardware: Contract electronics maker Jabil . Citi gave Jabil a price target of $80 – or nearly 33% upside. Software: Elastic, a company that commercializes open source search and data analysis software. In a separate note dated September 20, Citi gave Elastic a price target of $155 – or 115% upside. Morgan Stanley added: “We may be a bit early, but software should be relatively defensive on further sales and valuations look reasonable now after EU Tech delivered its biggest underperformance since 2005.” Research firm MoffettNathanson also sounded the drum for software stocks, but warned: “We do not recommend buying entire positions immediately; rather, we recommend averaging over the coming months.” Semiconductors, payments While JPMorgan’s rating for technology is currently neutral, it said the sector could tactically trade better into the end of the year, adding that it is “less excited about the medium-term perspective.” JPMorgan is bullish on two sectors in particular: payments and semiconductors. The bank’s basket of European growth stocks includes: chip firm ASML, Dutch payments firm Adyen and financial software provider Temenos.
