Technology Unabashed by the Absence of Stimulus: 5 Top Picks
On October 6, in a sudden turn of events, President Donald Trump abruptly halted ongoing negotiations between Republicans and Democrats on the second round of fiscal stimulus. These insecure market participants and stock markets immediately turned red from the positive zone.
The Dow, S&P 500 and Nasdaq Composite lost 1.3%, 1.4% and 1.6% respectively, although all of these indices were in the green just before Trump's tweet. Investors remained very concerned about the pace of economic recovery in the US.
In particular, the first ditch in the fiscal stimulus - known as the CARES Act - ended in July. Despite two months of lengthy negotiations, the U.S. Congress failed to find an amicable solution regarding the size and scope of a new round of coronavirus aid.
One of the main reasons Wall Street fell sharply in September after a five-month rally was the uncertainty surrounding a new fiscal stimulus.
The technology sector becomes the best choice
Tech stocks are the best bets when there is no new fiscal stimulus. Lack of incentives will severely affect the reopening of stocks like airlines, vacation travel, restaurants and bars, movie theaters and theater operators, theme parks, and other entertainment segments.
The recovery in the labor market, US consumer spending and small business - the three major parts of the economy - is likely to face several obstacles. This affects cyclical stocks like consumer discretionary, industrials, materials, and financials. This could also jeopardize the much-touted V-shaped recovery of the US economy.
However, the technology sector does not need further stimulus. We must not forget that the growing demand for high-tech products in an otherwise difficult environment has been a catalyst for the industry. A number of breakthroughs in 5G wireless networking, cloud computing, predictive analytics, AI, self-driving vehicles, digital personal assistants, and IoT have increased the overall space.
In addition, the tech sector tumbled last month on overvaluation concerns. Several well-established stocks in the sector are currently available at attractive valuations.
Coronavirus promotes digitization
In the meantime, the global coronavirus outbreak has established digitization as the new normal for what has been touted as a very long time. Let's say that no vaccine or line of treatment appears in the near future. The technology sector would remain one of the greatest beneficiaries of the new normal for communication.
Since social distancing keeps close and dear people away, people, especially citizens of emerging and less developed countries, are reaching smartphones, tablets or notebooks more than ever.
The push for digitization is likely to come from two sides. People who enjoy the immense benefits of digital platforms are less likely to revert to their old habits. The new way of connection opened up a new world for them. Companies will also be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems.
Our top picks
At this point, it's wise to invest in large-cap tech stocks with a cheap Zacks rank. We narrowed our search to five such stocks that have strong 2020 growth potential and robust revisions to EPS estimates. Each of our picks has either a Zacks rank of 1 (strong buy) or 2 (buy). The full list of today's Zacks # 1 Rank stocks can be found here.
The following graphic shows the price development of our five picks over the past six months.
salesforce.com.inc. CRM is the leading provider of on-demand customer relationship management software that enables organizations to better manage critical operations such as sales automation, customer service and support, marketing automation, document management, analytics, and custom application development.
The company Zacks Rank # 1 expects an expected earnings growth rate of 25.1% for the current year (end of January 2021). The Zacks consensus estimate for the current year has improved 25.9% in the past 60 days. The stock is up 65.5% over the past six months.
Zoom Video Communications Inc. ZM provides a video-first communications platform worldwide. The demand for its remote work platform and solutions is expected to remain robust as some form of social distancing will be required until a vaccine or effective treatment for coronavirus is developed.
Zacks Rank # 1 has an expected earnings growth rate of more than 100% for the current year (end of January 2021). The Zacks consensus estimate for the current year’s result has improved 4.9% in the past 30 days. The stock is up 306% over the past six months.
Qorvo Inc. QRVO develops and markets technologies and products for wireless and wired connectivity worldwide. The company operates in two segments: mobile products and infrastructure and defense products.
Zacks Rank # 1 has an expected earnings growth rate of 11.5% for the current year (end of March 2021). The Zacks consensus estimate for the current year’s earnings has improved 7% in the past 30 days. The stock is up 50.6% over the past six months.
CGI Inc. GIB provides information technology and business process services in Canada, Northern Europe, France, United States, United Kingdom, Europe and Asia Pacific. The services include the management of IT and business outsourcing, system integration and consulting as well as the sale of software solutions.
The company Zacks Rank # 2 expects an expected earnings growth rate of 12.4% for the current year (end of September 2021). The Zacks consensus estimate for the result of the current year has improved by 0.7% in the last 7 days. The stock is up 16.4% over the past six months.
Alphabet Inc.'s Google Google has grown rapidly in this fast-growing, highly competitive cloud marketplace. The Google search engine is advanced, simple and customizable at the same time. This is the main reason behind the leading market share in search. Alphabet uses its Android operating system not only to build market share in search, but also to drive sales of apps and digital products through Google Play.
Although the company's expected earnings growth rate is negative for the current year, it has estimated earnings growth of 29.9% for the next year. The Zacks consensus estimate for the current year and next year has improved 0.7% and 0.3%, respectively, over the past 30 days. Zacks Rank # 2 stock is up 20.2% over the past six months.
Biggest technical breakthrough in a generation
Be one of the earliest investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon become obsolete and will be replaced by these new devices. It is expected to create 22 million jobs and generate $ 12.3 trillion in activity.
A few stocks could skyrocket the most if the rollout for this new technology accelerates. Early investors saw returns similar to those on the Microsoft purchase in the 1990s. The Zacks special report just released reveals 8 stocks to watch. The report is only available for a limited time.
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Click here to get this free report. Salesforce.com, inc. (CRM): Free stock analysis report CGI Group, Inc. (GIB): Free stock analysis report Alphabet Inc. (togetL): Free stock analysis report Qorvo, Inc. (QRVO): Free stock analysis report Zoom Video Communications, Inc. (ZM): Free stock analysis report Around this one To read articles on Zacks.com, click here. Zacks Investment Research
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