Wedbush sees tech stocks rallying 7% to 10% into year-end — here are its top picks

Published Mon, Aug 30 202112:05 PM EDTUpdated Mon, Aug 30 20211:54 PM EDT

With the Fed's Jackson Hole summit in the rearview mirror, Wedbush told clients it's best to own the technology sector in the final months of the year. The Wall Street firm expects the tech sector to rally 7% to 10% into year-end, with several names in particular — like Apple and DocuSign — outperforming. The Technology Select Sector SPDR is up 23% in 2021. "We believe Fedspeak and messaging coming out of Jackson Hole is very bullish for tech stocks with an 'all clear for risk-on assets' in the near-term led by tech stocks," Wedbush analyst Daniel Ives told clients. Investors breathed a sigh of relief on Friday after Federal Reserve Chair Jerome Powell signaled that bond tapering could start this year, but the central bank is in no rush to raise interest rates. Powell said it has "much ground to cover" to reach its other goal of maximum employment, making clear that rate hikes would not immediately follow after the Fed is done cutting its monthly stimulative bond purchases. "The fear of a more hawkish Fed/Powell and rates rising sooner has been a lingering worry for the Street that threatened to put the pause on the ongoing tech and market rally in our opinion," added Ives. "Our bullish view of tech stocks over the years is predicated on our multi-year thesis that the digital transformation story across the consumer and enterprise ecosystem is still in the early innings of playing out in what we characterize as a $2 trillion market opportunity for the next decade." Tech shares have underperformed recently during periods when the 10-year Treasury yield has been increasing on concerns that higher rates will devalue the future earnings growth promised by the sector. Take a look at Wedbush's favorite technology stocks through the end of 2021. The Wall Street firm has an outperform rating on all the listed names. Wedbush expects cloud and cybersecurity spending to soar going forward. "We importantly note that only 40% of workloads are currently on the cloud today and poised to hit 70% by 2025, with cyber security threats growing by the day," said Ives. The increase spending in this sector should boost stocks like Zscaler , Sailpoint Technologies , CyberArk Software , Palo Alto Networks and Fortinet , according to the analyst. The firm has a $240 price target on Zscaler, a $185 target on CyberArk Software and a $70 target on Sailpoint Technologies. Wedbush sees Palo Alto Networks and Fortinet rallying to $470 and $310, respectively, over the next 12 months. "We believe the fundamental drivers and sweet spot of cloud demand continue to give us high conviction in owning the secular winners in the burgeoning cyber security sector and also expect a surge of M & A to take place within this sector from both strategic/financial players," Ives added. Wedbush also sees some of the legacy technology darlings rallying into year-end and beyond. The firm said the latest Industrial Revolution is playing out in the world of technology. "The tech bull cycle will continue in our opinion its upward move into year-end/2022 given the scarcity of growth names/winners in this market looking ahead on the heels of the 4th Industrial Revolution playing out among enterprises/ consumers," said ives. Heading into the fall, this trend supports names like Apple , Microsoft , DocuSign, Nice and Pegasystems . Apple is Wedbush's top pick in the technology sector. The Wall Street firm sees the company rallying to $185 per share in the next 12 months. Wedbush has a $350 price target on Microsoft and a $310 target on Nice. The firm sees Pegasystems rallying to $155 in the next year. — with reporting from CNBC's Michael Bloom.

Visitors look at Apple Inc. iPhones and iPads on display at the SK Telecom Co. T Factory flagship store in Seoul, South Korea, June 11, 2021.

SeongJoon Cho | Bloomberg | Getty Images

With the Fed's Jackson Hole summit in the rearview mirror, Wedbush told clients it's best to own the technology sector in the final months of the year.