Craig Hallum: 3 Top Tech Picks With Over 40% Upside Potential


Investment research firm Craig-Hallum maintains a cadre of 30 financial analysts, who combined have more than 1,400 stock recommendations logged into the TipRanks database. Even after the recent market gyrations, the average return on their picks is 8.2%.

Anthony Stoss, a senior analyst with the firm, has turned his eye to the high-tech sector, with a report on wireless internet providers and on semiconductor chip makers.

Stoss highlights the features that denote strength in the sector, so that investors will know what to look for: high liquidity reserves, low exposure to manufacturing risk, reduced share price, and a strongly positive outlook for 2021. In Stoss’ view, this profile readily identifies stocks with a clear path out of the current volatile market. For investors interested in a long-term play, these are the names that will likely bring returns.

Anthony Stoss is a partner and senior research analyst at Craig-Hallum, where he reviews the technology sector for the Equity Research Department. Stoss’ particular expertise is in wireless and cable company stocks. The quality of his research is clear from his TipRanks rating: 5 stars, and an overall ranking in the top 5% of Wall Street’s financial analysts. Here are three of his top picks in tech.

Boingo Wireless, Inc. (WIFI)

We’ll start with Boingo Wireless. This small-cap company is a provider of mobile internet access for wireless enabled devices – smartphones, tablets, gaming handsets, laptops. The company operates over a million small-cell network towers and boasts an annual reach of a billion customers. Last year, Boingo entered a partnership with Verizon, the second-largest wireless services provider in the US, to provide Verizon 5G access for stadiums, airports, hotels, and other indoor public spaces.

Like many tech companies that run at the leading edge of their sector, Boingo typically operates at a net loss. Declines in advertising and retail revenue hurt the company in Q4 as 2019 ended, and offset gains in multifamily and wholesale wifi. Total revenues slipped 5.5% yoy to $64.1 million. EPS was in line with the forecasts, however, coming in at a 12-cent loss. Looking ahead, the Q1 earnings are expected show a net loss of 6 cents.

In his notes, Stoss points out that Boingo’s business is based on long-term contracts; more than 95% of its customers are in that model, and contractual minimums will guarantee income no matter what happens in the economic short term. He writes, of the company’s forward prospects, “We look for WIFI to return to strong growth in CY21 as the largest contract win in the company’s history (NYC MTA) rolls out… While we continue to believe WIFI’s business model is durable, we think the company remains in talks with multiple bidders and a deal is likely to get done…”

As a result, Stoss reiterates his Buy rating on WIFI shares, while his $22 price target shows confidence in a 70% upside potential for the stock in 2020. (To watch Stoss’ track record, click here)

If we step back and look at the bigger picture, we can see that overall the stock has a ‘Strong Buy’ analyst consensus rating. In the last three months, the stock has received 3 ‘buy’ ratings and just 1 ‘hold.’ With an average analyst price target of $20.83, analysts are projecting upside potential of 61% from the current share price. (See Boingo stock analysis on TipRanks)

Knowles Corporation (KN)

Next up is Knowles, a leader in mobile audio systems. The company provides solutions for micro-acoustics and audio processors for a range of mobile devices, including consumer electronics, communications sets, medical systems, defense hardware, and cars. Knowles’ tech provides improved audio signal clarity, and is found in Amazon’s Alexa. The company’s best-known products are found in hearing aids, and in cell phones’ built-in mics.

Offering high-demand niche products for expensive gadgets is a path to profitability, and KN typically reports quarterly net gains. The company shows a typical patter: low EPS in the first half of the calendar year, followed by strong earnings in Q3 and Q4. With that in mind, it’s no surprise that Q4, with 30 cents EPS and $233.9 million in revenues, was the company’s second-best last year. And looking forward to the coming Q1 report, the expected 4-cent per share net loss makes sense as both a cyclical low and an indicator of just how strongly the COVID-19 epidemic has impacted overall consumer demand.

Looking at KN, Craig-Hallum’s Stoss points out two major assets for the company: it has access to plenty of cash, with $78 million on hand and another $400 million available in a revolving credit facility, and it doesn’t have to worry about any near-term debt turnover, as it does not have any debt maturing until November 2021. In addition, KN only outsources 10% of its manufacturing production, and so has control over its own inventory.

Regarding Knowles’ prospects, the analyst writes, “[With] the world moving online, networks are being constrained pushing for a faster 5G rollout. We look for KN’s 5G solutions to drive growth as 5G adoption accelerates… While near-term the company will see coronavirus impacts, we think KN will bounce back quickly and earn $1.12 in pro-forma EPS for FY21…”

Stoss puts a Buy rating on KN, with a $21 price target that implies a 47% upside. (To watch Stoss’ track record, click here)

Overall, Knowles is given a Moderate Buy rating from the analyst consensus. This is based on 7 recent reviews, split three ways: 5 Buys, and 1 each Hold and Sell. Once again, the market slide of February and March has pushed the share price far down – this stock is selling for $14.33. The average price target is $20.29, and suggests room for a 42% upside potential in the coming 12 months. (See Knowles stock analysis on TipRanks)

ON Semiconductor (ON)

This year has not been kind to the semiconductor chip industry. With the coronavirus pandemic and economic dislocations promising a recession, the chip industry has been buffeted around quite severely. ON has felt the impact worse than most; its stock is down by more than half since peaking near $25 in mid-January of this year.

A look at the company’s niche may help explain why. It provides analog and logic chips for data and power management. The company’s products are heavily used in automotive and industrial applications, and both of those sectors are hard-hit by epidemic-inspired shutdowns. With factories idled and workers in limbo, companies like ON are finding less demand for services. The company is not looking at a Q1 net loss – right now – but is expected to show a heavy sequential EPS decline when it reports first quarter financial results.

The upshot is, ON shares are selling at a deep discount, and combined with a clear path forward, that makes for an attractive point of entry. Stoss, in his Craig-Hallum notes on the stock, outlines that path forward: “We highlight ON is 85-90% insourced and can likely shift production to 100% insourced to protect GMs. Additionally, with networks being constrained with the world moving online driving a faster rollout of 5G as well as higher bandwidth needs from datacenters, ON should see ramping demand for both its 5G infrastructure and data center products.”

In line with his upbeat mid- to long-term outlook on ON, Stoss gives the stock a $20 price target, implying an eye-opening 72% upside potential. He rates the stock as a Buy, of course. (To watch Stoss’ track record, click here)

ON Semi has received 17 analyst reviews in recent weeks. Their breakdown – 8 Buys, 6 Holds, and 3 Sells – gives the stock a Moderate Buy consensus rating. The mixed ratings reflect some Wall Street caution after the stock’s sharp decline in recent months. The average price target, however, at $20.56, indicates a 48% upside potential, and suggests the possible rewards for investors willing to shoulder the risk. (See ON stock analysis at TipRanks)

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