Technology, which was the most-loved sector amid the pandemic and proved its resilience, has lost its momentum lately on surging yields. Notably, 10-year Treasury yields spiked to the highest level of 1.61% in a year, after remaining below 1% for most of 2020.
This is especially true as higher yields make stocks, especially the high-growth ones, less attractive as these lower stock market valuations. After a solid surge last year, tech stocks’ valuation has risen to lofty levels. The big tech companies reported big profits last year driven by an e-commerce surge. Now, with the pandemic seemingly ending with faster vaccination rollout, consumers can return to pre-pandemic habits, thereby hurting the sector’s performance.
Additionally, Tesla’s (TSLA) crazy rally, which powered most of the technology sector last year, has fizzled out. The stock has plunged 25% and lost about $200 billion in market value since Feb 8 when the electric-car firm said that it had spent $1.5 billion on bitcoin in a bid to boost returns on cash.
However, the beaten down price might be a good entry point for investors following Federal Reserve Chairman Jerome Powell’s testimony. The Fed pledged to continue supporting the economy by keeping interest rates low and said that inflation would remain in control. Powell said that higher bond yields reflect economic optimism and not inflation fears. This might reassure investors, making beaten-down stock prices attractive at the current levels.
[Editor's Note: Watch Demo of Elon Musk’s Next Big Project]
Further, the outlook for the tech sector remains solid given that the global digital shift that has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication and 5G technology will continue to drive the sector higher.
Finally, we arrive at the five stocks that are cheap and have the potential to deliver higher returns with lower volatility.
LG Display Co. Ltd. (LPL) – P/E Ratio: 7.66 vs. 19.03
This company primarily manufactures and sells thin film transistor liquid crystal display panels. It is expected to see massive earnings growth of 352.7% for this year and has a market cap of $7.6 billion. LG Display has a Zacks Rank #2 and VGM Score of B.
Himax Technologies Inc. (HIMX) – P/E Ratio: 12.50 vs. 21.33
This company designs, develops and markets semiconductors that are critical components of flat panel displays. The stock has an estimated earnings growth rate of 283.3% for this year and has a market cap of $2.5 billion. It sports a Zacks Rank #2 and has a VGM Score of A.
EMCORE Corporation (EMKR) – P/E Ratio: 14.35 vs. 20.1
This company offers a broad portfolio of compound semiconductor-based products for the broadband, fiber optic, satellite and terrestrial solar power markets. With a market cap of $256.1 million, the stock has an estimated earnings growth of 476.9% for the fiscal year (ending September 2021). It has a Zacks Rank #2 and a VGM Score of B.
[Editor's Note: Watch Demo of Elon Musk’s Next Big Project]
Vishay Intertechnology Inc. (VSH) – P/E Ratio: 14.46 vs. 22.49
This company is a global manufacturer and supplier of semiconductors and passive components. The company is expected to see massive earnings growth of 87% for this year and has a market cap of $3.6 billion. It has a Zacks Rank #1 and VGM Score of A.
Aviat Networks Inc. (AVNW) – P/E Ratio: 15.18 vs. 20.71
This company is a global supplier of wireless network solutions and network management software, backed by a suite of professional services and support. It is expected to see massive earnings growth of 188.1% for fiscal year (ending June 2021) and has a market cap of $367.5 million. Aviat Networks has a Zacks Rank #1 and VGM Score of A.
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