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5 Tech Bets on Fed Support & Lower Rates Till 2022

Aniruddha Ganguly

The U.S. Federal Reserve stated its long-term commitment to support the economy ravaged by coronavirus outbreak on Jun 10. Apart from keeping the benchmark short-term rates near zero through 2022, the central bank will continue to buy bonds to maintain low borrowing rates.

Notably, the Fed had reduced its benchmark interest rate to a range of 0-0.25% in mid-March. The unprecedented fiscal and monetary support from the U.S. government and Fed has helped the economy stay afloat amid the pandemic. Per MarketWatch, the Fed’s balance sheet has already topped $7 trillion versus $4 trillion in March.

The lower rates will make it easier for consumers as well as businesses to avail loans. Moreover, increased spending is expected to boost an economy faltering under business shutdowns and high unemployment rates.

Notably, the latest job report released on Jun 5 showed an addition of 2.5-million in payrolls in May. Moreover, unemployment rate declined from 14.7% to 13.3%, which however, is much higher than 3.5% at the end of 2019.

The Fed now expects GDP to shrink 6.5% in 2020 and the unemployment rate to be 9.3%. However, the economy is expected to rebound to show a 5% gain in 2021 and 3.5% in 2022. Unemployment rate is expected to improve to 6.5% at the end of 2021 and 5.5% at the end of 2022.

Tech Rally Continues

The S&P 500 and the Dow Jones Industrial fell a respective 0.53% and 1.04% following Fed’s announcement. However, tech-heavy Nasdaq continued to rally, increasing 0.67% to 10,020.35. 

The technology sector is expected to benefit from the combination of low interest rates and low inflation, which remain much below the Fed’s 2% target.

Notably, big technology companies have shown remarkable resiliency amid coronavirus-induced economic downturn and have been primarily responsible for driving the stock market recovery from the March lows.

Notably, the S&P 500 Information Technology Index is up 13.5% year to date versus the loss of 1.26% for the S&P 500 Index.

Prospects Galore in Tech Space

Tech stocks remain attractive owing to consistent digital transformation. Rapid adoption of cloud computing along with the ongoing infusion of AI and machine learning as well as the accelerated deployment of 5G technology, blockchain, IoT, autonomous vehicles, AR/VR and wearables are major tailwinds.

Coronavirus-induced work-from-home and online-learning wave is not only driving demand for computers and peripherals but also for remote-working management tools and video conferencing software.

Moreover, contactless payment and delivery gained significant traction during the outbreak. Further, an e-commerce boom prompted by changing consumer behavior is a key catalyst.

Here we pick five tech stocks that, apart from boasting strong fundamentals, carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

All these stocks have market cap of more than $10 billion. They also boast solid cash balances and have outperformed the S&P 500 in a year’s time.

One Year Performance

 
 

Top Bets

Zoom Video Communications ZM is riding on the coronavirus-induced work-from-home and online-learning trend.

It currently flaunts a Zacks Rank of 1. The consensus mark for its fiscal 2021 earnings is pegged at $1.18 per share, having moved 174.4% north in the past 60 days.

Cash balance as of Apr 30, 2020 was $1.11 billion with no debt in its balance sheet. Zoom Video has market cap of $57.31 billion.

Fortinet FTNT is benefiting from rising cyber-attack risks that are propelling demand for its FortiMail platform.

The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2020 earnings stands at $2.78 per share, having moved 1.1% north over the past 30 days.

Cash balance as of Mar 31, 2020 was $1.40 billion with a debt-free balance sheet. Fortinet has market cap of $21.97 billion.

NVIDIA NVDA is making progress on the back of sturdy growth in GeForce platform, which is bumping up its gaming revenues. Moreover, an uptick in Hyperscale demand is a tailwind for this #2 Ranked stock’s data-center business. Additionally, this $222.53 billion company has a robust balance sheet, with net-cash balance of $8.88 billion as of Apr 26, 2020.

The consensus mark for NVIDIA’s fiscal 2021 earnings has climbed 4.2% to $7.90 per share over the past 30 days, suggesting growth of 36.4% from the year-ago reported figure.

Micron Technology MU is riding on strong demand for memory chips from PC manufacturers and datacenter operators. This Zacks Rank #2 company is also set to gain from the revival in demand for DRAM, supported by progress in customer inventory adjustments in the cloud, graphics and PC markets.

The Zacks Consensus Estimate for its fiscal 2020 earnings is pegged at $2.38 per share, having been revised 12.8% upward in the past 30 days. Moreover, Micron has a net cash balance of $1.51 billion as of Feb 27, 2020, and a market cap of $59.11 billion.

ServiceNow NOW is progressing on its dominance in the IT service market (ITSM). This Zacks #2 Ranked company continues to win market share by replacing legacy on-premise systems with cloud-based processes.

The consensus mark for its fiscal 2020 earnings is pegged at $4.24 per share, having been raised 7.1% in the past 60 days. This $74.15-billion company has a solid balance sheet, with net cash balance of $656 million as Mar 31, 2020.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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