Tech stocks have been hit hard as the market has taken us all on a wild ride. But Goldman Sachs says that with stocks down from their record highs on trade war and other fears, there are gems to be unearthed.
The investment bank has forecasted an additional 5% return for the S&P 500 this year, largely on the merit of a basket of companies that have been growing their sales and profits despite what’s happening in the broader market.
“We recommend investors overweight Financials and Info Tech, and underweight the Consumer, Real Estate, and Utilities,” David Kostin, a strategist at Goldman Sachs, said.
Goldman put out a list of 100 stocks worth thinking about, but these three tech stocks with some of the best earnings growth on the market are my picks to dig into after the fireworks.
Netflix (NASDAQ: NFLX)
Netflix is now the most popular TV service in the United States, and is again about to report solid subscriber growth in the second quarter as it debuted new seasons of buzzy original content like “13 Reasons Why” and “Queer Eye.”
The stock took a dive late last week after reaching an all-time high of $423 on June 25th, and has been trading sideways since. But it boasts EPS growth of 131%, and one analyst—David Miller at Imperial Capital—just pushed his price target for the stock to $503 per share. That’s 29% higher than today’s prices.
The reasoning behind such a seemingly lofty price target involves pricing and operating leverage, according to Miller. He noted that the streaming giant’s basic package—which doesn’t include high-definition picture quality—is just $7.99 per month, which is lower than Amazon’s streaming product but with far more content. Considering this, Netflix has room to up prices in the future without losing subscribers.
While Netflix is a hot name, it is an expensive stock and investors should certainly consider the company’s free cash flow losses which could be between $3 and $4 billion this year.
But considering the stock’s rise so far, it’s likely to continue to rise despite the mixed bag fundamentals. And now could be a good time to buy as the stock is at a bit of a discount from its recent high.
Salesforce.Com (NYSE: CRM)
The customer relationship management software platform has been on a tear this year, rising over 60%, but the stock remains attractive.
Salesforce’s top and bottom lines are growing rapidly, with first quarter revenue and operating cash flow up 25% and 19% year-over-year, respectively. The company’s subscription and support revenue, which account for most of its total revenue, gained 27% compared to last year and the company’s EPS growth sits at 69%.
Not many large caps can boast those kinds of numbers, and its proof positive that demand for Salesforce’s sales and marketing software remains solid.
The company has also made some smart investments of late, including its 888,500 share stake in Twilio (NYSE: TWLO)—a cloud communications company—which is up somewhere north of 150% since the company invested at the end of 2017.
That hasn’t been Salesforce’s only successful investment. It also took a 45,000 share position in MongoDB (NASDAQ: MDB), an open-source cross-platform document database program. Like TWLO, it has proven to be a good investment, with shares rising nearly 70% year-to-date.
Salesforce is widely regarded as one of the leaders in cloud computing and software-as-a-service (SaaS), and is one of the most consistent growth stories on the market.
Adobe (NASDAQ: ADBE)
Adobe is an intriguing option for investors right now.
In the last couple of weeks, shares have dropped 18% despite reporting better-than-expected earnings for the second quarter.
The company reported 24% year-over-year revenue growth, with 30% growth in its subscriptions segment, and $1.66 in earnings per share – higher than the $1.54 in earnings per share expected by analysts. Adobe also expects its Digital Media segment—which accounts for roughly 70% of its revenue—to grow at 25% year-over-year in the third quarter.
The software giant, which produces such applications as Photoshop and Illustrator, also entered an agreement to acquire Magento Commerce for $1.68 billion. Magento’s Commerce Cloud will enable commerce to seamlessly integrate into the Adobe Experience Cloud, which will deliver a single platform for both B2B and B2C customers worldwide.
“Embedding commerce into the Adobe Experience Cloud with Magento enables Adobe to make every moment personal and every experience shoppable,” said Brad Rencher, the executive vice president and manager of digital experience at Adobe.
Adobe anticipates the Magento acquisition will add an additional $40 million in revenue in the third and fourth quarters.
The full list of Goldman Sachs 100 stocks with strong EPS is below: