• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Alibaba, Salesforce, Constellation Software Make RBC's List of Top 2020 Picks

RBC analysts expect Alibaba and Salesforce to continue posting strong double-digit sales growth, and remain fans of Constellation's M&A-driven growth strategy.
By ERIC JHONSA
Dec 24, 2019 | 03:48 PM EST
Stocks quotes in this article: CNSWF, BABA, CRM, UBER, MSFT, LOW, GILD, V, DUK, GOLD

RBC Capital is bullish on a Chinese Internet giant and two fast-growing software names heading into the new year, as well as one well-known ride-hailing giant that's trading far below its IPO price.

Alibaba (BABA) , Salesforce.com  (CRM) and Uber  (UBER) made it onto RBC's list of top 30 global stock ideas for 2020, as did Canadian software conglomerate Constellation Software (CNSWF) , which is listed in Toronto.

For those curious, non-tech names on the list include the likes of Lowe's (LOW) , Gilead Sciences (GILD) , Visa (V) , Duke Energy (DUK) and Barrick Gold (GOLD) .

RBC's Zack Schwartzman sees Alibaba ($240 price target) growing its revenue at a 27% compound annual rate (CAGR) from 2019 to 2022, and its EBITDA at a 30% CAGR. Despite Alibaba's big 2019 gains, Schwartzman remains a fan of its valuation: Alibaba carries an enterprise value (EV - market cap minus net cash) equal to 18.5 times his 2020 adjusted EBITDA estimate, even with large investments in growth initiatives that are depressing near-term profits.

For Salesforce ($200 target), RBC's Alex Zukin likes the fact that its current remaining performance obligations (CRPO - all of the contracted revenue that's expected to be recognized within 12 months) is still growing at a 20%-plus clip. He also notes that Salesforce still has several growth engines, including its Service Cloud and Marketing Cloud platforms, its cloud developer platforms and international expansion.

The Tableau Software acquisition is seen as a potential growth catalyst for Salesforce, as are adoption of Salesforce's Einstein AI/machine learning platform and untapped pricing power. Microsoft (MSFT) , whose Dynamics 365 CRM apps have been gaining ground with mid-market businesses, is highlighted as a competitive risk.

The $64 Uber price target set by RBC's Mark Mahaney is more than 100% above Uber's current trading price, and also 42% above its $45 IPO price. The valuation is based on an EV/sales multiple of 4 times Mahaney's 2021 Uber revenue estimate, which in turn assumes a 30% revenue CAGR.

Though admitting Uber is still posting massive losses, Mahaney also notes Uber's operating expenses and driver/rider subsidies have been gradually declining as a percentage of revenue since 2016. He argues "further rationalization" in the ride-sharing competitive environment will improve Uber's bottom line, as will long-term pricing power, insurance leverage and opex leverage. Regulation, elevated subsidy spend and autonomous driving are cited as potential risks to his thesis.

RBC's Paul Treiber asserts that Constellation (CAD $1,500 target), which has acquired dozens of software businesses providing vertical/industry-specific solutions, is "likely to generate one of the highest returns for shareholders over the long term in our coverage universe." He adds his thesis reflects the high hurdle rates Constellation sets for its purchases, as well as the scalable nature of a decentralized business model that gives individual businesses a high degree of autonomy and is "pushing decisions for allocating capital further down into the organization."

Treiber points out that there are now 40,000 software companies within Constellation's database of potential targets, and sees its operating margin growing by 1.6 percentage points in 2019 to 27.2% in spite of a headwind from recent acquisitions. He admits Constellation is trading at an elevated valuations -- its enterprise value is equal to 19 times expected EBITDA for the next 12 months -- but also argues the company deserves a premium valuation thanks to its proven ability to drive free cash flow per share growth over the long-term.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Technology

More from Technology

Atlassian Is Now in the Latter Stages of Its Decline

Bruce Kamich
Jun 24, 2022 12:22 PM EDT

Let's check the charts and indicators.

Wolfspeed Could Start to Run With the Pack

Bruce Kamich
Jun 24, 2022 7:55 AM EDT

Here's how aggressive traders can play this tech stock.

Chinese Tech Company Ximalaya Pulls Planned IPO Yet Again

Alex Frew McMillan
Jun 24, 2022 6:30 AM EDT

Poor market conditions and the uncertain status of Chinese tech listings cause the podcast market leader to put off its Hong Kong IPO.

Will This Year's Energy and Commodity Trades Become Last Year's Tumbling Tech?

Helene Meisler
Jun 24, 2022 6:00 AM EDT

I can't remember the last time anyone asked me about Apple. No one cares.

Remember All the Hype Around Palantir?

Bruce Kamich
Jun 23, 2022 12:52 PM EDT

Here's how the charts look now.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login