Tech stocks have taken a beating recently, sending the Nasdaq 100 Index (NDX) plummeting by 8.6% from its all-time high on Oct. 1 to its low on Oct. 10, based on intraday prices. Counter to growing skepticism about the outlook for tech stocks, Piper Jaffray sees a buying opportunity, Barron's reports. Among the stocks that they recommend, with potential gains ranging from 17% to 124% versus current prices, are Twilio Inc. (TWLO), Take-Two Interactive Software Inc. (TTWO), Impinj Inc. (PI), Amazon.com Inc. (AMZN), Broadcom Inc. (AVGO), Salesforce.com Inc. (CRM), Mellanox Technologies Ltd. (MLNX), ServiceNow Inc. (NOW), Nutanix Inc. (NTNX), and Microchip Technology Inc. (MCHP). Details on these stocks are in the table below.
10 Techs Poised For Big Rebounds
|Stock||Drop From High||Gain to Target Price|
Source: Yahoo Finance; price drops and gains to target as of the close on Oct. 22; target prices are per Piper Jaffray.
Significance For Investors
Regarding Microchip Technology, Piper Jaffray analyst Harsh Kumar believes, per Barron's, that expectations of slower growth already have been reflected in the stock price, and investors are anticipating that the company will fail to meet consensus estimates for 3Q and 4Q 2018. By contrast, he expects that these estimates will be achieved. Also, he sees cost-saving synergies from the company's recent acquisition of Microsemi, and is "very comfortable" with its ability to meet its debt obligations.
Techs Have Fallen Further
|Stock Index||Drop From High|
|Dow Jones Industrial Average||(6.1%)|
Source: Yahoo Finance; as of the close on Oct. 22.
Concerning Amazon, Piper Jaffray analyst Mike Olsen expects its high profit margin advertising business to continue growing, reaching $16 billion of revenue by 2020. With Take-Two, he sees that company riding the video game industry trend in which higher profit margin digital sales are replacing the sale of physical discs. He also expects big sales from the company's new Red Dead Redemption 2 game.
Meanwhile, Morgan Stanley has issued bearish reports on both the informational technology and communication services sectors. With tech, they warn that forward P/E ratios probably have significant downside. With the new communication services sector, they have an underweight rating: despite an attractive forward P/E relative to the S&P 500 as a whole, they do not see a buying opportunity, worrying instead about possible overvaluation.
Earnings reports will be a key indicator of whether these stocks are on the road back. Macro forces such as interest rate hikes by the Federal Reserve and prolonged trade tensions may provide major headwinds.