Here are some of CFRA’s top tech stocks to buy.
Tech stocks are off to an uncharacteristically sluggish start to 2021. The Technology Select Sector SPDR ETF (ticker: XLK) has lagged the S&P 500 year to date. For more than a decade, these brief periods of tech sector underperformance have been long-term buying opportunities, and 2021 may be no exception. Economists are expecting the U.S. economy to surge back to life with 6.5% gross domestic product growth this year as businesses reopen and consumers return to the market. Here are eight of the best tech stocks investors can buy today, according to the CFRA analyst team.
Microsoft Corp. (MSFT)
Microsoft is the world’s largest software company and is best known for Windows, Office and Azure cloud services. Even at a nearly $2 trillion market capitalization, analyst John Freeman says Microsoft is among his top tech stock picks. Freeman says Microsoft’s long-term transition to a cloud-centric business model has been very successful, and the company has tremendous tailwinds in the cloud versions of Office, Dynamics, Teams, LinkedIn, Bing and Xbox Live. Freeman says Microsoft’s operating margins will continue to rise as its shift to cloud revenue progresses. CFRA has a “strong-buy” rating and a $280 price target for MSFT stock.
Adobe produces creative content software and other applications used for marketing and e-commerce. Freeman says Adobe dominates its creative software categories and is well positioned to generate 22% compound annual revenue growth over the next three years. He says the company has a long-term path to operating margins in the mid-50% range. Near-term tailwinds for Adobe include the ongoing mass shift of data and applications to the cloud, monetization of non-paying users, additional cross-selling opportunities and accelerating growth in the company’s Document Cloud service as more document-based processes become automated. CFRA has a “strong-buy” rating and a $590 price target for ADBE stock.
Salesforce is the world’s largest provider of cloud-based customer relationship management software. Freeman says Salesforce is one of the “most disruptive innovators” in the entire software space, yet the stock still trades at an attractive valuation. He says Salesforce is one of the largest pure plays on the enterprise cloud migration theme. After years of aggressive acquisitions, Salesforce now has a robust portfolio of product offerings. Freeman says Salesforce’s leading 27% market share of the CRM market will continue to grow over time. CFRA has a “strong-buy” rating and a $295 price target for CRM stock.
Broadcom is a diversified global semiconductor manufacturer. Analyst Angelo Zino says the lengthening of smartphone replacement cycles is a headwind for Broadcom, but the global 5G upgrade cycle is a bullish catalyst in the next couple of years. Broadcom is gaining content share in 5G devices, and Zino is encouraged by the company’s shift to high-margin infrastructure software sales. The stock trades at an attractive valuation of just 16 times forward earnings. Broadcom also pays a sizable 3.1% dividend, a rarity among high-growth tech stocks. CFRA has a “strong-buy” rating and a $510 target for AVGO stock.
ServiceNow provides software-as-a-service applications used to automate business processes and workflows. Freeman says there are plenty of reasons to love ServiceNow. Digital transformation and cloud migration are ongoing tailwinds. ServiceNow has a large and growing ecosystem of third-party partners. Also, the company has opportunities to expand its operating margin beyond 34%. As ServiceNow’s products and services become more deeply embedded in customers’ operations, they provide more pricing leverage. Finally, Freeman says ServiceNow has opportunities to expand its business outside of core information technology services management. CFRA has a “strong-buy” rating and a $648 price target for NOW stock.
Fidelity National Information Services (FIS)
Fidelity National Information Services is a financial technology solutions provider for banks and capital market firms. Analyst David Holt says the company’s $43 billion 2019 merger with Worldpay set the stage for at least 7% annual organic revenue growth starting in 2023. In the near term, e-commerce and integrated merchant payments will serve as growth catalysts. Holt says Fidelity National is an excellent economic reopening play and is projecting Merchant Solutions sales growth in at least the mid-teens percentage range and overall revenue growth of 8% in 2021. CFRA has a “strong-buy” rating and a $165 price target for FIS stock.
Autodesk is the market leader in engineering and architectural design software. Freeman says the company’s tethered cloud model is a revenue growth driver that forces non-paying users to convert to paid subscriptions. He estimates Autodesk could increase operating leverage and expand operating margins to 42% by 2024. CFRA projects three-year compound annual revenue growth of 22%. Freeman says the increasing complexity of the tech world will make Autodesk’s products increasingly compelling for customers, and Autodesk has an opportunity to expand to adjacent market segments over time. CFRA has a “strong-buy” rating and a $372 price target for ADSK stock.
Atlassian Corp. (TEAM)
Atlassian specializes in so-called “meta software,” or software tools used to develop, test and run other software. Freeman says meta software is a tremendous growth opportunity, and Atlassian is one of the largest pure plays on the theme. The more software replaces labor and capital in the enterprise world, the more critical and valuable software development and operation become, Freeman says. He says Atlassian’s products are highly differentiated and well reviewed. CFRA projects 31% compound annual revenue growth over the next three years. CFRA has a “strong-buy” rating and a $288 price target for TEAM stock.
Eight tech stocks with “strong-buy” ratings:
— Microsoft Corp. (MSFT)
— Adobe (ADBE)
— Salesforce.com (CRM)
— Broadcom (AVGO)
— ServiceNow (NOW)
— Fidelity National Information Services (FIS)
— Autodesk (ADSK)
— Atlassian Corp. (TEAM)
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