With falling oil prices, global tensions, and the Chinese slowdown, 2016 is clearly off to a rough start. However, BMO Capital Markets believes that turbulent times lend themselves to making long-term investments. Here, BMO highlights their top investment ideas for 2016 including Microsoft Corporation (NASDAQ:MSFT), Nokia Corporation (ADR) (NYSE:NOK), Skyworks Solutions Inc (NASDAQ:SWKS).
Microsoft is among BMO’s top picks for 2016 as Keith Bachman believes the company can “leverage its solid portfolio of enterprise products, including Windows Server, SQL Server, Power BI and Dynamics to gain share in enterprise accounts.” Bachman currently has a Outperform rating on the company with a $64 price target.
Specifically, Bachman notes that Microsoft is gaining traction in its cloud segment, allowing the company to “gain incremental share of wallet across both on-premises and in the cloud enterprise solutions.” The analyst notes that Azure, Microsoft’s cloud platform, has the potential to grow 55% each year for the next three years, ultimately accounting for 5% of total revenue in 2018, up from 2% in the last reported quarter.
The analyst concludes, “Most importantly, we think Microsoft can grow operating income and FCF by 5%-7% y/y over the next few years… If we are right on our estimates for MSFT, we believe the stock can move higher, based on consistency, even if MSFT reports results that are largely in line with consensus estimates.”
According to TipRanks, 13 analysts are bullish on Microsoft while 1 remains on the sidelines. The average 12-month price target for the stock is $62.54, marking a 19% potential upside from where shares last closed.
Nokia Corporation (ADR)
Tim Long is bullish on Nokia in 2016 thanks to its merger with Alcatel-Lucent. Last year, the companies announced that they would be joining forces, with Nokia offering $16.6 billion for the French telecommunications company. Long explains that the combined company adds “routing, optical, and a number of other wireline technologies” to Nokia’s arsenal, allowing it to “compete in bids for an end-to-end network provider.”
The analyst believes Nokia will achieve more in synergistic savings than the 900 million euros it estimated. He explains, “The NOK management team has proved adept at restructuring, taking their Networks margins from breakeven to over 10% in a few years.” Long concludes, “Finally, NOK and ALU combined will have a huge Intellectual Property position, and each is currently under-leveraged. We believe IPR revenues can grow meaningfully over the next few years.”
Long currently has an Outperform rating on Nokia with a $10 price target. According to TipRanks, all 5 analysts who have weighed in on Nokia in the last 3 months are bullish on the company with an average 12-month price target of $10.25, marking a 41% potential upside from where shares last closed.
Skyworks Solutions Inc
Tim Long also remains bullish on Skyworks despite the recent negative sentiment surrounding Apple. Skyworks is a semiconductor company and one of Apple’s largest suppliers. The analyst notes that although Apple orders make up about 40% of Skyworks’ revenue, the negative sentiment surrounding decelerating iPhone sales is overblown.
He explains, “We believe AAPL will grow iPhone units by mid/high single digits after a tough comparison year in 2016.” Aside from iPhones, Long explains that RF (radio frequency) revenue is increasing, driven by the move to 4G. Coupled with other uses for RF, such as Wi-Fi, Long anticipates 10% growth in the RF industry over the next two years.
Long currently has an Outperform rating on Skyworks with a $79 price target. According to TipRanks, all 10 analysts who have weighed in on the stock in the last 3 months are bullish with an average 12-month price target of $99.20, marking a 48% potential upside from current levels.