The S&P 500 finally closed at a new record high on Tuesday for the first time since the coronavirus selloff, amid low August trading volume, as Wall Street takes its summer holiday. Amazon AMZN, Salesforce CRM, and Adobe ADBE helped lead the way, as better-than-projected earnings results continue to spur the broader market.
The S&P 500 closed at its first new high since February, after flirting with the record several times during the market’s massive and quick comeback off its March lows. The tech-heavy Nasdaq also closed at another new high once again.
Wall Street appears pleased with the solid earnings results, which includes strong showings from Home Depot HD and Walmart WMT before the opening bell Tuesday. On top of that, the third quarter earnings picture is improving and signs of an economic recovery continue to pop up, despite the coronavirus, as people and businesses realize there is no other choice but to adapt for now.
For instance, U.S. housing starts surged 22.6% in July from the prior month. This easily topped forecasts and represented the largest gain since October 2016. On top of that, the monetary and fiscal support is likely poised to help propel stocks higher, despite growing tensions between the U.S. and China and election uncertainty and turmoil.
That said, investors likely want to remain on the lookout for stocks to buy. So today we dive into three large cap tech stocks that are projected to grow during the economic downturn and are part of secular trends within technology that could help them climb for years to come. And they also pay a dividend, which is always an added bonus for stocks that have climbed so high….
Lam Research LRCX
Lam Research is a global supplier of wafer fabrication equipment and services for the semiconductor industry. Back in early March, the firm released what it calls the most “innovative etch product that has been developed in the last 20 years.” The new Sense.i platform is designed to help produce finer 3D details on chips amid ever more complex smartphones and devices. At the end of July, LRCX topped our June quarter (Q4 FY20) earnings and revenue estimates, with sales up 18%.
LRCX shares have soared 95% since March 23 to outpace its Semiconductor Equipment - Wafer Fabrication industry’s 70% average climb, which includes Applied Materials AMAT. The stock is trading just below its recent highs and is now up 120% in the last two years.
Despite its run, Lam Research trades at a significant discount against its highly-ranked industry at 4.4X forward 12-month sales vs. 7.5X. The firm has also consistently lifted its dividend payout in recent years and its 1.23% dividend yield tops its industry’s 0.96% average. And its balance sheet is strong.
Lam Research’s consensus earnings estimates have surged since its report, with its Q1 figure 23% higher and its FY21 estimate up 21%. This positivity helps LRCX earn a Zacks Rank #1 (Strong Buy) at the moment, alongside its “B” grade for Momentum. Our current Zacks estimates call for its adjusted Q1 earnings to soar 63% on 43% higher sales. Meanwhile, its fiscal year earnings figure is projected to jump 30% on 24% stronger revenue that would see it reach $12.41 billion.
Taiwan Semiconductor Manufacturing Company TSM
Taiwan Semiconductor is the world’s largest semiconductor manufacturer, with 56% market share. This means that it’s helping drive the chip revolution and it will likely continue to for years to come, as some of the biggest and most innovative names in the market, including the likes of Nvidia, turn to TSMC to manufacture their chips. TSMC runs a dedicated semiconductor foundry business and it claims to boast the “world's largest semiconductor design ecosystem” and has enabled “85% of worldwide semiconductor start-up product prototypes.”
Investors should note that more tech firms are looking to foundries, such as TSMC, for their integrated circuit production because the costs and time involved have grown enormous. This makes the idea of building chips in-house far less attractive, if not impossible for many. Therefore, it might be worth considering TSMC because it is set to help support the ever-expanding chip industry for years, which includes the cutting-edge 5-nanometer transistors.
TSMC’s Q2 earnings surged 81% on 29% higher revenue and it margins climbed. Peeking ahead, our Zacks estimates call for its Q3 sales to climb 22% to help lift its adjusted EPS figure 31% higher. TSMC is a Zacks Rank #2 (Buy) at the moment and it is part of an industry that rests in the top 2% of our over 250 Zacks industries.
On top of that, its 1.67% dividend yield matches the S&P 500 average. TSM shares have jumped 56% over the past three months and 90% over the last year. And it still trades for around $80 a share, which might make it more attractive to some.
Apple hasn’t needed an introduction in years, and it flexed its muscles once again at the end of July. The iPhone maker’s revenue and earnings topped estimates, with sales up 11% and adjusted earnings up 18%. Plus, Apple announced a 4-for-1 stock split that will start at the end of August.
The cosmetic move, which Apple has made before, will help make its shares seemingly more attainable to a wider array of investors. The split has already paid off, with AAPL stock up 20% since its July 30 release, in anticipation of increased demand.
Pandemic-based delays have forced Apple to slightly push back the release of its next iPhone. But the continued expansion and success of its services and wearables division helps make up for the seasonality of its flagship smartphone. The move also helps it make more money from its massive number of active devices. Apple’s paid subscriptions jumped by 130 million from the year-ago period to reach over 550 million. And executives said on its earnings call that they remain confident Apple will hit its increased target of 600 million.
Along with its ability to expand within hardware and services, and its move to bring more of its silicon in-house, the company’s cash position makes it practically a must-own. AAPL closed its third quarter of fiscal 2020 with $81 billion in net cash. The company also returned over $21 billion to shareholders via dividends and buybacks, and it raised its dividend by 6% and it authorized a $50 billion increase to its repurchase program during its first coronavirus quarter.
Apple’s current dividend yield of 0.72% tops the 10-year U.S. treasury’s 0.66%. On top of that, Apple’s strong earnings revisions activity helps it grab a Zacks Rank #1 (Strong Buy) right now. The firm’s fiscal 2020 revenue is projected to climb 5%, with its adjusted earnings set to jump 9%. Peeking further ahead, Apple’s adjusted FY21 EPS figure is projected to jump 24% above our FY20 estimate on 15% stronger revenue.
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