U.S. stock markets retreated on Jun 9, snapping a six-day winning streak. Both the Dow and the S&P 500 indexes fell sharply. However, the Nasdaq Composite has maintained its pace closing in the positive territory in seven out of last eight trading days. On Jun 9, the tech-laden index achieved a significant milestone of 10,000 for the first time in history.
Nasdaq's Fabulous Rally in Past Two and Half Months
The Nasdaq Composite started rallying since the beginning of 2020 after finishing an impressive 2019 rally of 35.2%. Since then, the index had a dream run attaining fresh highs almost every day. On Feb 19, the tech-laden index reached its all-time high of 9,838.37 after which it took a backward bend on the verge of the coronavirus outbreak.
The tech-heavy index entered into year-to-date negative territory on Feb 25 and then fell in the bear market (characterized as decline of 20% or more from recent high) on Mar 12. The down trend continued till Mar 23. However, from Mar 24, the Nasdaq Composite started moving upward along with both the Dow and the S&P 500. On Apr 14, it finally exited the bear market.
On Jan 9, the Nasdaq Composite rose 0.3% to record a fresh closing high of 9,953.75. Importantly, in intraday trading, the index briefly touched the 10,000 level at 10,002.5 for the first time ever. The index is up 10.9% year to date and has rallied an astonishing 50.1% during Mar 23 to Jun 9.
Nasdaq Sails Through Tech Sector's Rally
Since the Nasdaq Composite is a tech-heavy index, its performance is directly related to the technology sector. Notably, the sector was feared widely to suffer major setbacks owing to the coronavirus-induced economic disaster. So, its strong growth came as a pleasant surprise to market participants.
Notably, the technology sector is benefiting from continued strong digital transformation. Rising demand for technologically superior products has been a silver lining for this sector in an otherwise tough environment.
The last few years witnessed a series of breakthroughs in cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, which have set the stage for robust growth. In this regard, large-scale commercial deployment of 5G wireless network has boosted the overall technology sector.
The Technology Select Sector SPDR (XLK) is the only one among the 11 broad sectors of the S&P 500 index, which ended in green on Jun 9. Meanwhile, the technology sector is the largest gainer of the market's benchmark of which only four broad sectors are in positive year to date. Technology is also the only sector to witness a double-digit rally of 11.7% year to date. Notably, the benchmark index itself is down more than 0.7% year to date.
Our Top Picks
At this stage, it will be prudent to invest in large-cap (market capital > 50 billion) tech stocks with a favorable Zacks Rank. We have narrowed down our search to five such stocks that have strong growth potential for 2020 and robust EPS estimate revisions. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past month.
NVIDIA Corp. NVDA is gaining decent market share among the gaming service providers. The strong line-up of advanced graphics cards has made it a favorite graphics card provider among PC makers. Datacenter presents solid growth opportunity for the company. Its foray into the autonomous vehicles and other automotive electronics space is a positive. NVIDIA’s GPUs are rapidly gaining from the proliferation of artificial intelligence.
The company has an expected earnings growth rate of 36.4% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved by 2.9% over the past 30 days.
Applied Materials Inc. AMAT provides manufacturing equipment, services and software to the semiconductor, display and related industries. Moreover, it has been gaining considerable success in expanding beyond semiconductors. The company is in a very good position to take advantage of the transition from LCD to OLED technology. Rapid growth in large-format TVs has opened up opportunities for Applied Materials.
The company has an expected earnings growth rate of 25.3% for the current year (ending October 2020). The Zacks Consensus Estimate for current-year earnings has improved by 1.9% over the past 30 days.
Apple Inc.'s AAPL Services and Wearables businesses are expected to drive top-line growth in fiscal 2020 and beyond. Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as its new cash cow. Apple is encouraging developers to use artificial intelligence and machine learning in their apps. Its focus on autonomous vehicles and augmented virtual reality technologies are growth opportunity in the long haul.
The company has an expected earnings growth rate of 3.5% for the current year (ending September 2020) and 23.8% for next year. The Zacks Consensus Estimate for next-year earnings has improved by 0.3% over the last 30 days.
ServiceNow Inc. NOW provides cloud computing services that automate digital workflows to accelerate enterprise IT operations. The company’s Now Platform enables enterprises to enhance productivity by streamlining system processes.
The company is rapidly expanding into non-ITSM (IT service market) areas like human resource and security solutions by launching new products and services. It has an expected earnings growth rate of 27.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 5.2% over the past 30 days.
Taiwan Semiconductor Manufacturing Co. Ltd. TSM is the world's largest dedicated integrated circuit foundry. It is engaged in manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices. The company has an expected earnings growth rate of 30.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.4% over the past 30 days.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
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