Companies in the technology sector have been the largest beneficiaries of the global COVID-19 pandemic, with many stocks boasting solid runs this year. The demand for technology products and services is growing and companies are increasing their tech budgets to fund their digital transformations.

However, there are certain technology stocks that did not perform in line with the pack. But many of them are now innovating quickly to ensure that they stand out in coming years. Hence, investment banking firm JP Morgan Chase & Co. (JPM) started evaluating stocks in the sector seeking those that have more upside.

Cognizant Technology Solutions Corporation (CTSH) and CommScope Holding Company, Inc. (COMM) are two stocks that were recently upgraded by JPM. So, they may be solid bets for good returns going into 2021.

Cognizant Technology Solutions Corporation (CTSH)

CTSH is a provider of information technology, consulting, and business process outsourcing services. The company operates in four segments: financial services t, healthcare segment, manufacturing/logistics, and other, which includes communications and high technology.

JPM has upgraded CTSH from “Neutral” to “Overweight” and raised its price target for the stock to $93, implying a 17% upside. The firm notes CTSH’s “improved growth profile” and expects headwinds to diminish in 2021 “revealing a structurally improved company backed by better booking trends.” In the third quarter ended September 30, 2020, CTSH reported revenue of $4.2 billion, which was relatively stable compared to the prior year, on back of 4.8% year-over-year revenue growth in the healthcare segment. Year-to-date, bookings have increased 15%. And its EPS for the quarter came in at $0.64, compared to the year-ago value of $0.90. However, analysts expect EPS to increase 9.7% next year.

CTSH continues to strengthen its portfolio with a digital strategy and inorganic expansion. The company recently agreed to acquire Bright Wolf, a privately-held technology services provider that  in custom Industrial Internet of Things (IIoT) solutions. In August it acquired Tin Roof Software, a privately held custom software and digital product development services company, in August.

CTSH has gained 27.7% year-to-date to close yesterday’s trading session at $79.19. The stock has appreciated 14.3% in the past three months and is currently trading just 2.4% below its 52-week high of $81.11.

How does CTSH stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

B for Peer Grade

B for Industry Rank

A for Overall POWR Rating

The stock is also ranked #3 of 14 stocks in the Outstanding – Tech Services industry.

CommScope Holding Company, Inc. (COMM)

COMM provides connectivity and infrastructure solutions for wireless, business enterprise, and residential broadband networks as well as communications and entertainment networks worldwide. COMMoperates through four segments – Outdoor Wireless, Home, Broadband, and Venue & Campus.

JPM recently raised COMM to “Overweight”, with a new price target of $18. JPM believes that “the firm can expect an investing ramp toward infrastructure densification for 5G in the coming year, as well as ongoing tailwinds from broadband spending to keep up with bandwidth requirements. There’s also a better outlook for the Venue and Campus segment, with expectations for better enterprise spending.”

The company’s revenues for the third quarter ended September 30, 2020 have improved 3% sequentially to $2.17 billion. Though the Home Networks and Outdoor Wireless Networks segments struggled, the Broadband Networks segment grew 20% sequentially. Non-GAAP EPS came in at $0.51, compared to the quarter-ago value of $0.32.

Yesterday, COMM announced the industry’s first 204MHz digital return y, which enables operators to deploy a high split in their upstream band and deliver new gigabit speeds. The digital return solution consists of the CommScope DT4600N node transmitter and DR3600N headend receiver. Further, COMM partnered with Nokia (NOK) last month to develop a new interleaved passive-active antenna (IPAA) radio platform. The modular IPAA simplifies the introduction of 5G NR by enabling its deployment on the existing sites absent the need for additional footprints. Hence, in line with this progress, the market expects COMM’s EPS to rise 34.3% next year.

COMM has lost 7.8% year-to-date to close yesterday’s trading session at $13.08. The stock is already up 21.1% in the past month and is presently trading 13% below its 52-week high of $15.05.

According to the POWR Ratings, COMM is a “Buy.” It also has an “A” for Trade Grade, and a “B” in Buy & Hold Grade and Industry Rank. In the 53-stock Technology – Communication/Networking industry, it is ranked #20.

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CTSH shares rose $0.17 (+0.21%) in after-hours trading Tuesday. Year-to-date, CTSH has gained 31.61%, versus a 16.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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