Technology stocks have been back in favor after a slew of solid earnings reports this quarter. While many of these companies saw their sales sky-rocket last year driven by the move to digital amid the pandemic's lockdowns, many did not expect that performance to continue into this year. For instance, we saw a rotation into cyclical stocks at the end of last year as news of vaccine approvals rolled in.
For many tech stocks, though, it turns out that their business models have set them up for continued success, and Wall Street analysts would agree. Analysts meet with management and other stakeholders to help determine a company's future value based on its financials and growth potential. They use this information to generate earnings estimates and target prices that help them form their overall ratings.
We can find attractive technology stocks if we combine analyst ratings with our proprietary POWR Ratings. This is why investors should consider stocks such as Apple Inc. (AAPL), Qualcomm Inc. (QCOM), and Cadence Design Systems, Inc. (CDNS). All three stocks are loved by analysts, have strong growth drivers, and rate highly in our POWR Ratings system.
Apple Inc. (AAPL)
One stock that analysts love is APPL. The company saw its shares soar into record territory ahead of its latest earnings release, only to pull back afterward. Don't let that pullback fool you, though. The company is seeing massive growth across its product line. While the iPhone is the biggest driver of its success, its services and wearables businesses are where the profits are coming in from now.
In the June quarter, APPL's services revenue jumped 32.9% year over year to $17.5 billion. This includes the App Store, AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, and Apple Arcade. Its Apple's Wearables, Home, and Accessories unit saw sales rise 36% year over year to $8.8 billion. This segment includes Apple Watch, AirPods wireless earbuds, Beats headphones, and the Apple HomePod Mini wireless speaker.
AAPL's shares are expected to gain ahead of next month's introduction of the company's iPhone 13 handsets. The company has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Sentiment Grade of A, which isn't surprising as thirty-four out of forty-two analysts rate the stock a Strong Buy or Buy. Plus, the stock has a 25.8% upside based on a price target of $185 from Canaccord Genuity.
J.P. Morgan also has a price target of $175. AAPL has a Quality Grade of B due to strong fundamentals. For instance, the company had a whopping $61.7 billion in cash on hand as of the end of the most recent quarter, compared with $16 billion in short-term debt. AAPL also has a return on equity of 135%, indicating management is quite efficient. We also provide Growth, Value, Momentum, and Stability Grades for AAPL, which you can find here.
AAPL is ranked #18 in the Technology – Hardware industry. You can find other top stocks in this industry by clicking here.
Qualcomm Inc. (QCOM)
QCOM develops and licenses wireless technology and also designs chips for smartphones. The company's key patents revolve around CDMA and OFDMA technologies, which are standards in wireless communications that are the backbone of all 3G and 4G networks. QCOM is also a 5G network technology leader, and virtually all wireless device makers license its IP.
Its 5G chips power the AAPL iPhone 12 and Android devices. Plus, QCOM's chips are expected to power the world's first 5G personal computer, the Internet of Things, self-driving cars, and augmented reality apps. This is a massive opportunity for the company. QCOM and Tencent (TCEHY) have also partnered on mobile gaming devices, a big win for the chipmaker.
QCOM has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Value Grade of B, which makes sense based on its valuation. For instance, its forward P/E is only 16.23. QCOM also has a Sentiment Grade of A as it is well-liked by the "Smart Crowd." There are currently twenty-fine analysts that rate the stock a Strong Buy or Buy.
Canaccord Genuity and Baird have price targets of $200, which means the stock has a potential upside of 36.2%. For the rest of QCOM's grades (Growth, Momentum, Stability, and Quality), make sure you click this link.
QCOM is ranked #11 in the B-rated Semiconductor & Wireless Chip industry. For more top-ranked stocks in this industry, click here.
Click here to check out our Semiconductor Industry Report for 2021
Cadence Design Systems, Inc. (CDNS)
CDNS designs, markets, and services enterprise computational software used in high-tech manufacturing. Its CAD/CAE platform is responsible for creating silicon chips, motherboards, and other electronic components used in the Internet of Things, artificial intelligence, 5G communications, aerospace, automotive, healthcare, and other industrial applications.
Leading technology companies use its software to design consumer electronics, wearables, smart appliances, self-driving cars, smartphones, and more. Electronic design automation products that aid in computer-aided design and engineering (CAD/CAE) of electronics generate most of the company's revenue.
The company had a solid second quarter where it benefited from strength across its digital & signoff solutions. CDNS is also benefiting from higher investments in emerging trends such as IoT and autonomous vehicle subsystems. The company has an overall grade of B and a Buy rating in our POWR Ratings system.
CDNS is well-liked by analysts based on its Sentiment Grade of A. A majority of analysts that cover the stock rate it a Buy or Strong Buy. For instance, both Keybanc and Wells Fargo have Overweight ratings and price targets above $165. The company also has a Quality Grade of A due to a rock-solid balance sheet. CDNS has a current ratio of 1.6, which indicates it has more than enough liquidity to handle short-term obligations.
To gain access to all of CDNS's grades (Growth, Value, Momentum, and Stability), click here. CDNS is ranked #18 in the Software – Application industry. For more top stocks in this industry, click here.
Click here to check out our Software Industry Report for 2021
AAPL shares . Year-to-date, AAPL has gained 10.62%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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