Coronavirus fears have investors searching for ways to get defensive by dialing back exposure to the volatile market. The decade-long bull market has expanded valuations, especially in the tech sector. Many tech companies have bloated balance sheets and negative cash flow and may struggle in an economic downturn. Others have exposure to businesses in secular decline or are overly reliant on international sales.
While the market dip could serve as a long-term buying opportunity for some tech stocks, the worst may be yet to come for others. Here are seven tech stocks to sell, according to Bank of America.
Accenture Plc (NYSE: ACN)
Accenture is a global IT services firm that derives 54% of its revenue from outside of the U.S., primarily from Europe. The stock is down 12.2% year-to-date, and analyst Jason Kupferberg recently said Accenture is a top-tier global IT business that will likely continue to gain market share over the long-term.
Unfortunately, he said the stock’s valuation is bloated and unjustified given the company’s slowing consulting bookings growth and lower revenue growth outlook in fiscal 2020. Last quarter, Accenture reported its lowest Consulting segment book-to-bill ratio in five years.
Bank of America has an Underperform rating and $205 price target for ACN stock.
Micron Technology, Inc. (NASDAQ: MU)
Micron manufactures memory chips such as DRAM and NAND, and more than 80% of its chip production occurs in Asia. The stock is down 9% in 2020, but analyst Simon Woo recently downgraded Micron and its suppliers.
Woo said memory stocks outperformed in 2019 on high hopes for 2020, but the COVID-19 virus will likely derail the expected earnings turnaround and inventory recovery in the memory space. Woo cut his 2020 EPS estimate by about 25% and said chip inventories will likely grow during the first half of the year.
Bank of America has an Underperform rating and $50 price target for MU stock.
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Autodesk, Inc. (NASDAQ: ADSK)
Autodesk is a software services company that provides a range of solutions for architectural, engineering, construction, manufacturing and other types of customers.
Autodesk shares are down 5.1% in 2020, and the company recently reported a solid fourth quarter, including both a revenue and earnings beat. However, analyst Kash Rangan says the company’s fiscal 2021 guidance suggests revenue growth and billings growth will accelerate this year. Rangan says Autodesk deserves credit for a big 2019 and transitioning to a mostly recurring revenue model. However, he sees no clear near-term catalyst ahead.
Bank of America has an Underperform rating and $150 price target for ADSK stock.
Cognizant Technology Solutions Corp (NASDAQ: CTSH)
Cognizant is a global IT services company with more than 70% of its employees located in India. Cognizant shares are down 2.1% year-to-date, holding up relatively well compared to its peers.
Kupferberg recently said the company’s fourth quarter was a step in the right direction given it exceeded revenue expectations. However, he said first-quarter margin guidance was disappointing and Cognizant’s turnaround remains in the very early stages with limited long-term visibility into organic revenue and EPS growth. Kupferberg said the new CEOs turnaround strategy seems solid, but it’s still too early to turn bullish on the stock.
Bank of America has an Underperform rating and $60 price target for CTSH stock.
Paychex, Inc. (NASDAQ: PAYX)
Paychex is the second-largest U.S. provider of payroll, human resources and benefits outsourcing services.
Kupferberg said Paychex’s valuation is a bit extended given the company’s lackluster fundamentals. After a big 2019, Paychex shares now trade at a significant premium PEG multiple relative to peers. In addition, he's concerned about competition, particularly in the company’s core payrolls business. The stock is down 8.7% this year, but Kupferberg said the stock’s 3.2% dividend should provide a bit of downside protection for the stock at some point.
Bank of America has an Underperform rating and $82 price target for PAYX stock.
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Xilinx, Inc. (NASDAQ: XLNX)
Xilinx is a semiconductor stock that is a leading supplier of high-density programmable logic devices, or PLDs. The stock is down 19.4% year-to-date.
Analyst Vivek Arya recently said the coronavirus dip has created a long-term buying opportunity in certain stocks given the imminent 5G wireless network boom. Unfortunately, Xilinx isn’t one of those opportunities.
Arya said the December quarter looked like the cyclical bottom for Xilinx sales prior to the coronavirus outbreak. However, 5G rollouts may be slowed due to the outbreak, and Xilinx’s recovery may be delayed more gradual than anticipated.
Bank of America has an Underperform rating and $90 price target for XLNX stock.
Maxim Integrated Products Inc. (NASDAQ: MXIM)
Maxim is a semiconductor stock that produces a broad portfolio of linear and mixed-signal integrated circuits. Maxim shares are down 11.4% in 2020.
Arya recently said there are plenty of things to like about Maxim, including growth in its optical business, its auto outlook and its improving channel inventory. Unfortunately, he said there is limited visibility and consistency in the optical business, and Maxim shares are priced at a steep premium to its peer group based on forward earnings. Fortunately, the stock’s 3.5% dividend yield could limit downside at some point.
Bank of America has an Underperform rating and $67 price target for MXIM stock.