After the brief sell-off in the S&P 500 sparked by the so-called “carry trade” between the U.S. dollar and the Japanese yen, most investors thought that the bullish wave taking over the technology sector was over and done with. As it turns out, these were – and are – some of the stocks that recovered swiftly and now trade near their 52-week highs, but there’s much more than just price action backing the further upside that could be had in these names.
Now that most of the earnings announcements for the previous quarter are over, investors can point to more fundamental data to support a potential bullish view in a specific set of technology stocks. These stocks are also very well positioned to rally as the Federal Reserve looks to cut interest rates in the coming weeks. According to the CME’s FedWatch tool, these cuts could be here as soon as September 2024.
This now gives investors a more realistic timeline to consider taking a second look into stocks like payment platform PayPal Inc. (NASDAQ: PYPL) or tapping into some of the growing cloud computing and artificial intelligence names out there, like Oracle Co. (NYSE: ORCL) or even Adobe Inc. (NASDAQ: ADBE), which now has the benefit of recurring subscription payments on its platform.
PayPal's Latest Quarter Propels Stock Close to 52-Week High
To quiet down some of the fears around the technology space, PayPal stock has now risen to trade at 92% of its 52-week high price, a green day streak born off the company’s most recent quarterly earnings results. The press release will reveal a few important metrics for investors to consider.
Starting with one of PayPal’s key performance indicators, payment volume, investors will notice an 11% growth rate over the past 12 months, successfully beating inflation. More than that, transaction margins grew by 8% in the same period, which, all told, resulted in $1.19 earnings per share (EPS) for a jump of 36% over the year.
Considering that Wall Street analysts only forecast 11.1% EPS growth for PayPal in the next year, the outlook seems conservative compared to what the company has historically achieved.
Those at Macquarie felt this view had to be rectified, so they placed a $90 price target on the company.
Matching Mizuho’s valuation, they both dared PayPal stock to rally by as much as 25.6% from where it trades today. Management is also hoping for higher prices, as they placed 100% of the company’s free cash flow ($5 billion) into their stock buyback program, nearly 7% of the company’s market capitalization.
Oracle's Growth Details Justify a Strong Double-Digit Upside
Cloud computing businesses, or those that rely on the cloud for storage and other services, are seeing a healthy amount of demand lately. That trend, which isn’t expected to slow down any time soon, helps stocks like Oracle come out on top.
Examining the company’s latest quarterly earnings, it would look like investors have some things to worry about. Mainly, net income declined by up to 5% over the past year, leading to an even more significant decline of 7.3% in EPS. However, free cash flow is where the real gold is found for Oracle.
Free cash flow (operating cash flow minus capital expenditures) has been growing by double-digit rates every quarter since the second quarter of 2023.
This allows the company to reinvest in itself for better growth and development prospects.
Knowing this, analysts at Guggenheim decided to boost their price targets to $175 a share and reiterate their “Buy” rating on Oracle stock.
To prove these valuations right, the stock would need to rally by 25.5% from where it trades today, which would mean a new 52-week high despite it already trading at 94% of its previous high.
Adobe's Subscription Revenue Brings Stability in Volatile Markets
Trading at 86% of its 52-week high, Adobe stock has just as much momentum behind it to push for newer highs. But, investors need to find a catalyst – a further reason – for the stock to continue on this upward trajectory, and they can find it in the company’s latest quarterly results.
Reaching $5.3 billion in revenue with 10% annual growth is one thing; having subscription revenue be $1.2 billion (or 22.6% of the total) and experiencing 13% revenue growth is another.
When markets get volatile, as they have been recently after the S&P 500 sell-off triggered by the so-called “carry trade,” companies with reliable cash flows are preferred.
Since Adobe is now revamping its subscription-based services, knowing how much these cash flows can be worth to investors looking for stability, analysts decided to reward the company.
Those at Wells Fargo placed a $700 price target on Adobe stock, daring it to rally by as much as 24.6% from where it trades today.
This valuation also implies the stock needs to make a new 52-week high, which is the trend for the best technology stock on this list.
