JP Morgan's Noelle V. Grainger published a report on December 9th. JP Morgan has come up with a list of stocks in the media and technology market that have a potential to beat their respective benchmarks. Let’s have a look at these picks as well as the industries.
Applied & Emerging Technologies
Consumers are able to enjoy ownership of autos without high costs and hassle due to a flexibility of auto-sharing, helping in sustainable consumption. A tenfold increase in car-sharing members in 2016 is expected by Frost & Sullivan.
Zipcar (ZIP) was voted as the best stock in the industry for 2012 due to a market share of 75% and advantages of scale and reach, balance sheet size, consumer data, differentiated technology infrastructure, and branded self-service experience. With the recent acquisition of Streetcar, the company is planning on making its mark on the European market in 2012. Zipcar’s stock is currently trading at $14.14 and is expected to reach a target north of $30. J.P. Morgan expected Zipcar to grow pro forma EBITDA by 90% by the end of 2012 with an expected revenue growth of 24%. J.P. Morgan also expects net income to be around $5 million. Zipcar has market capitalization of $567 million and its current earnings per share of negative $0.68 are expected to be positive $0.34 by the end of next year.
Business & Education Services
Despite the slowdown in flex staffing, it is still modestly growing, especially in the European markets. J.P. Morgan expects solid prospects in staffing fundamentals over the next few years in the U.S. where professional staffing and IT as well as commercial staffing are enjoying seasonal lifts. Professional staffing has seen a tightening of labor supply, resulting in higher bill rates for certain areas. For-profit education institutions are likely to see mid-term growth due to restraints in the public sector.
Robert Half International (NYSE:RHI) has one of the largest market shares in the industry and is the top stock pick for this industry. It is expected to benefit from faster growth and increased profitability coupled with better pricing power. Its stock is currently trading at $27.48 and has fluctuated between $19.69 and $34.26 over the last 52-weeks. J.P. Morgan expects the company to reach a target price of $40. The company has market capitalization of $3.93 billion and its earnings per share of $0.44 are expected to reach $1.48 by the end of 2012. Robert Half lately saw a net profit margin of 4.49% in the third quarter of 2011.
ManpowerGroup (NYSE:MAN) is expected to have a margin greater than 50% as compared to the previous years, if the economy remains strong. Also, the company is trading at around 30% discount to its normal recessionary levels, being exposed to operations in Europe. It will likely see expanding multiples, better margins, and an increase in revenue in 2012. The company’s stock is currently priced at $35.02 and has traded in the range of $31.81 to $69.67 over the last 52-weeks. Earnings per share are currently negative at $2.03 and the company’s market capitalization is $2.86 billion.
Communications Equipment & Data Networking
Data-center virtualization is expected to be the major growth catalyst for companies like F5 Networks, showing a predictable growth-profile. With the consolidation of data centers, WAN optimization products are likely to become more attractive. Companies like Qualcomm will benefit from the surge in smartphone usage which will likely shift the market upwards in terms of ASP and 3G devices.
Riverbed (NASDAQ:RVBD) is the current market leader in WAN optimization and the top pick of this market segment. Despite the slowdown of the economy, Riverbed is expected to experience rapid growth and a reduction in cost due to consolidation of data centers and movement of the market towards cloud-based services. Its shares are currently trading at $26.74 and are expected to reach a target of $29. The company has market capitalization of $4.15 billion and its earnings per share of $0.58 are expected to reach $1.26 by the end of 2012. Though, the valuation for stock can come off a bit.
Computer Services & IT Consulting
The payment processing sector is a part of this market industry and is characterized by revenues which are resilient to changes in output and consumer spending. This is why investors have preferred these companies under adverse economic conditions. Market regulation is likely to affect the FI revenue streams as domestic fiscal policy tightens. The rising stock market, on the other hand, will benefit this market segment.
MasterCard (NYSE:MA), being one of the leaders in the credit and debit network, is the top pick for this industry for 2012. With the worldwide shift towards card-based and electronic payment, MasterCard will see incremental benefits. MasterCard’s business is characterized by its reasonable valuation and attractive business model, making it a compelling large-cap growth idea. New processing and issuer wins will also give added growth to the company in 2012. MasterCard’s stock is currently trading at $371.30 and is expected to reach a target price of $435. In the last 52-week range, its stock has fluctuated between $215 and $384.99. The company has market capitalization of $47.63 billion and its earnings per share of $14.05 are expected to reach $21.75 by the end of 2012. Chase Coleman’s Tiger Global had the largest stake in MA among the 350 hedge funds we are tracking.
J.P. Morgan expects all industry verticals, which includes technology, to be adversely affected in 2012. Coupled with a continued macroeconomic uncertainty and inputs from primary research contacts, J.P. Morgan does not expect a good start for this market segment in 2012. Despite these adverse conditions, market share gainers such as Apple are likely to post above-peer revenue and earnings growth.
Apple (NASDAQ:AAPL) has been given an Overweight rating by J.P. Morgan and is the top pick of the industry due to a strong business model and historic progress through the 2008-09 economic down turn. With an increasing number of market penetrating products such as the iPhone, iPad, Macs, iTunes, and iCloud, Apple has done well to navigate through challenging times while fending off competition. Currently, its stock is trading at $390.95 and is expected to go north of $525. Apple has large market capitalization of $363.35 billion and current earnings per share of $27.68 are expected to rise to $39.53 by the end of next year. Apple is the most popular stock among hedge funds (see the 10 most popular stocks).
Semiconductor Capital Equipment
The next year is expected to be a trough for this market segment hence; J.P. Morgan believes that now is the best time to buy SemiCap stocks. Companies like Foundry and Intel (NASDAQ:INTC) will likely reduce capital expenditure due to a weaker macro demand. NAND and DRAM capital expenditure is expected to be flat due to the secular growth in end demand. J.P. Morgan believes that SemiCap stocks usually discount fundamentals 3-6 months ahead so buying stocks now will benefit investors the most.
Lam Research (NASDAQ:LRCX) was picked as the best stock for the industry due to its higher-than average exposure to memory. Lam’s Single Wafer Wet and Bevel Clean segments are likely to benefit the company coupled with improved shares in its core Etch equipment business. Lam’s stock is currently trading at $42.86 and is expected to reach a price target of $56. The company has market capitalization of $5.12 billion and its earnings per share of $5.86 are likely to benefit from aggressive share repurchasing. J.P. Morgan believes that a 3.0x cross-cycle average P/S multiple makes the current the valuation as cheap. Billionaire Ken Griffin’s Citadel had nearly $100 million invested in LRCX at the end of September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.