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Wall Street rebounded gloriously from the coronavirus-induced mayhem in March, closing both April and May with a strong rally. This is the first time this year that the market witnessed back-to-back monthly gains. The momentum is likely to continue in the near term as U.S. and global economies are reopening after 2-3 months of partial or full lockdowns that were imposed to prevent the spread of the deadly virus.
Meanwhile, it is the technology sector that has become the major catalyst to drive stock market's quicker-than-expected recovery. In the last two months, the S&P 500 gained 17.8%, while the Technology Select Sector SPDR (XLK), the most important component of the broad market index, rallied nearly 22%. Moreover, the tech-laden Nasdaq Composite index advanced 23.2% during the April-May period.
Technology Sector on Strong Footing
The technology sector was feared widely to suffer major setbacks owing to the coronavirus-induced economic disaster. In contrast, its strong growth came as a pleasant surprise to market participants.
The world is witnessing rapid technological improvements owing to unprecedented growth in high-speed mobile Internet traffic, particularly with respect to wireless data and video. These developments have transformed this sector into an ever-evolving, inventive and keenly contested space.
Growing deployment of next-generation super-fast 5G technology and massive application of IoT have created significant demand for technically sophisticated products. Moreover, large tech companies are rapidly shifting to the digital media platform offering online TV streaming services and resulting in innovative product differentiation.
Vast Opportunities in Emerging Markets
Leading emerging markets of Asia, Latin America, Africa and some European countries are still way behind in using digital technology compared with the developed world. While mobile phone penetration is nearly 90% in these countries, a large number of people are still using phones with old features, since voice communication and not data serve most of their needs. Even those, who are using smartphones, rarely utilize online digital features.
However, the outbreak of coronavirus has quickly changed the lifestyle and lookout of these people. People were not entirely used to digital platforms for doing office work (work from home), ordering food and other daily needs or transferring money and making payments. Moreover, online schooling, video conferencing and virtual networking have now become essential.
Individuals who have enjoyed immense benefits of digital platforms are less likely to go back to their old habits. The new way of connecting to one other has opened a new world for them. Also, business entities will be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems. All these developments will benefit the technology sector the most.
Our Top Picks
At this stage, it will be prudent to invest in technology stocks with a favorable Zacks Rank. We have narrowed down our search to five technology stocks that popped more than 30% in the last two months and still have upside left. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The chart below shows the price performance of our five picks in the last two months.
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Chegg Inc. (CHGG) operates a direct-to-student learning platform from high school to college with tools designed to help them pass their class and save money on required material. The Zacks Rank #1 company has an expected earnings growth rate of 33% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 15.2% over the last 30 days. The stock price has soared 70.7% in the last two months.
BOX Inc. (BOX) is a provider of a cloud content management platform. The platform enables internal and external collaboration on content, automation of content-driven business processes, development of custom applications, data protection, security and compliance features. The Zacks Rank #1 company has an expected earnings growth rate of 1,200% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 5.4% over the last 7 days. The stock price has rallied 42.3% in the last two months.
Logitech International S.A. (LOGI) designs, manufactures and markets products that allow people to connect through music, gaming, video, computing and other digital platforms worldwide. The Zacks Rank #1 company has an expected earnings growth rate of 5.1% for the current year (ending March 2021). The Zacks Consensus Estimate for current-year earnings has improved by 3.7% over the past 30 days. The stock has jumped 38.4% in the last two months.
Fortinet Inc. (FTNT) is a provider of network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide. The Zacks Rank #2 company has an expected earnings growth rate of 11.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 6.6% over the past 30 days. The stock has climbed 37.6% in the last two months.
NVIDIA Corp. (NVDA) is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. It operates in two segments, GPU and Tegra Processor. The Zacks Rank # 2 company has an expected earnings growth rate of 34.9% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved by 0.3% over the past 7 days. The stock has surged 34.7% in the last two months.
Editor's Note:
[Hot Tech Alert] 32X bigger than 5G?
5G and “AI” are all the rage…
But here’s what you likely don’t know:
The world’s best investors are lining up behind an explosive new technology that could trump them all. Warren Buffett calls it “ingenious.”
“It’s a foundational technology, like the Internet and electricity.”
Apple’s co-founder, Steve Wozniak, who said 5G “is not going to impact me much” … is calling this “the future.”
In fact, according to research from the World Economic Forum, this new technology is on pace to be 32 times bigger than 5G!
I’ve been tracking this for two years now. And 2020 is going to be the breakout year.
I’ve put all my findings together in a new presentation.
