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5 Stocks That Drove Tech ETF (XLK) to an All-Time High

Sweta Killa

The tech titans have been roaring higher with most of them hitting new highs amid the U.S. Department of Justice’s antitrust scrutiny. This is especially true as the ultra-popular Technology Select Sector SPDR Fund XLK, which is largely concentrated on big tech firms, hit all-time highs in the recent session, gaining 6.6% in a month and 33.3% year to date.

The surge was primarily driven by a solid comeback of chip stocks in a one-month period on signs of progress in the trade war between the United States and China as well as resumption of shipments to Huawei. Notably, the Philadelphia Semiconductor Index is up 10.9% in the past month.

Additionally, the rapid adoption of cutting-edge technology such as cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, AI and machine are driving the sector higher. The deployment of 5G (fifth-generation) technology — the next wireless revolution — is creating further opportunities. The wave of mergers and acquisitions is also providing further impetus to the sector. Moreover, the twin aspects of technology — defensive (software) and cyclical (semiconductor) — are adding to the strength (read: Apple May Buy Intel's 5G Modem Business, ETFs to Rally).

Let’s take a closer look at the fundamentals of XLK and the stocks behind this rally:

Inside The XLK

The ETF follows the Technology Select Sector Index and holds 67 stocks in its basket with higher concentration on the top two firms with a combined share of more than one-third of the portfolio. Additionally, software takes the top spot at 30.9% from an industrial look while IT services, technology hardware storage & peripheral, and semiconductors round off the next spots with double-digit exposure each. The fund has AUM of $21.8 billion and charges 13 bps in fees per year from investors. It trades in heavy volume of around 12.8 million shares a day on average, ensuring higher liquidity with a tight bid/ask spread, leading to lower trading costs for investors.

XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. Though most stocks in the fund’s portfolio have delivered astounding returns in the past month, a few were the real stars, gaining in about 20% and more. Below, we have highlighted the five best-performing stocks in the ETF in a month:

Best-Performing Stocks of XLK

Micron Technology Inc. MU: The stock has skyrocketed more than 43.7% in a month. It has seen a positive earnings estimate revision of 16 cents for the fiscal year (ending Aug 2019) over the past 30 days but has an expected negative earnings growth of 47.95%. The stock has a Zacks Rank #5 (Strong Sell) and sports a top VGM Score of A. It accounts for nearly 1% of XLK (read: Can Q2 Earnings Power Semiconductor ETFs?).

Western Digital Corporation WDC: The stock has soared about 36.2% in a month. It currently has a Zacks Rank #3 (Hold) and a VGM Score of C. The stock has witnessed negative earnings estimate revisions of 45 cents in the past month for the fiscal year (ending June 2020) and has an estimated negative earnings growth of 37.22%. It makes up for 0.3% share in XLK portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KLA Corporation KLAC: The stock has surged nearly 23.9% in the same timeframe. It has a Zacks Rank #3 and VGM Score of C. KLA Corporation saw no earnings estimate revision over the past month for fiscal year (ending Jun 2020) and has an estimated earnings growth rate of 8.2% year over year. It accounts for 0.4% share in XLK.

Applied Materials Inc. AMAT: This stock makes up for 0.9% share in the fund’s basket. It has also delivered robust returns of 21.6% in a month. The stock witnessed no earnings estimate revision activity over the past 30 days for the fiscal year (October 2019) and has a negative earnings growth estimate of 33.26% year over year. Applied Materials has a Zacks Rank #4 (Sell) and top VGM Score of A.

Lam Research Corporation LRCX: This stock makes up for 0.6% of XLK’s assets. It has jumped 19.3% in a month and saw no earnings estimate revision for the fiscal year (ending June 2020) over the past 30 days. Its earnings are expected to increase modestly by 0.61%. Lam Research has a Zacks Rank #3 and top VGM Score of A (read: Semiconductor ETFs: What Investors Need to Know).

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