U.S. Markets open in 7 hrs 1 min

5 Terrific Tech Stocks to Buy Ahead of Q1 Earnings

Swarup Gupta
FCB vs. STBZ: Which Stock Is the Better Value Option?

Some of the biggest tech names are slated to report earnings this week. These results come at a time when the technology sector is grappling with several crises which have sprung up at short intervals. Of the companies, slated to report earnings this week, Facebook, Inc. (FB) has had to battle the fallout of a data leak scandal. Meanwhile, Amazon.com, Inc. (AMZN) has been the target of several attacks from President Trump.

Given this backdrop, investors would be wondering whether upcoming results can help override recent concerns. Fortunately, earnings and revenues from the sector are likely to improve in the first quarter, which makes it a good idea to pick up select tech stocks which are also likely to outperform their earnings estimates.

Can Strong Results Outweigh Recent Concerns?

The variety of concerns plaguing technology, a sector which largely powered an unprecedented Bull Run, has had the strongest proponents of the sector scurrying for cover. Only recently, poor guidance from Taiwan Semiconductor Manufacturing Company Ltd. (TSM) pulled down other tech majors like Apple Inc. (AAPL).

But not all the worries the sector faces at the moment could snowball into threats of significant proportions. For instance, most market watchers believe that a divided Congress is unlikely to regulate data gathering of the kind practiced by Facebook or Google. Online advertising spends, therefore, are likely to remain largely unchanged.

However, higher user engagement will still be topmost on the list of investor priorities. Ultimately, earnings would not only have to be good overall. They would have to be strong enough to outweigh recent sector concerns.

Earnings Prospects Remain Promising

Unlike the Finance sector whose earnings performance notably improved this earnings season compared to other recent periods, the Tech sector’s earnings performance has been strong over the last many quarters. This strength is expected to continue in the Q1 earnings season as well.

Total Q1 earnings for the Tech sector are expected to be up 20.9% from the same period last year on 11.5% higher revenues. This would follow 24.2% earnings growth for the sector on 11.1% revenue growth in the preceding quarter. (Read: Can Tech Earnings Live Up to Expectations?)

That’s head and shoulders above the autos and conglomerate sectors, earnings for which are expected to decline by 9.6% and 1.1%, respectively during the first quarter. Overall, total Q1 earnings are expected to be up 18% from the same period last year on 5.3% higher revenues.

Our Choices

Tech stocks have been battered on several fronts this year, the latest being poor guidance from Taiwan Semiconductor. However, several of the concerns surrounding the sector are unlikely to build up into something larger.

For instance, U.S. lawmakers are unlikely to impose stringent regulation on tech majors in the near term. Meanwhile, in keeping with stellar fourth-quarter results, first-quarter numbers are likely to be impressive.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Twitter Inc. TWTR is a global platform that connects a user to a network of people, news, ideas, opinions and information.

Twitter has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 153.1%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +12.5% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Twitter in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Apr 25.

Western Digital Corporation WDC is one of the largest hard disk drive (HDD) producers in the United States.

Western Digital has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 6.4%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +2.3% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Western Digital in the to-be-reported quarter as well.

The company is expected to report third-quarter fiscal 2018 results on Apr 26.

VeriSign Inc. VRSN provides Internet infrastructure services that include domain name registry services and infrastructure assurance services.

VeriSign has beaten the Zacks Consensus earnings estimate for the three of the last four consecutive quarters with an average positive earnings surprise of 2.3%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +2.83% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Huntsman in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Apr 26.

Xilinx Inc. XLNX designs and manufactures a broad range of high-performance, high-density programmable logic devices (PLDs), such as field-programmable gate arrays (FPGAs) and complex-programmable logic devices (CPLDs).

Xilinx has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 9%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +5.26% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Quaker Chemical in the to-be-reported quarter as well.

The company is expected to report first-quarter 2017 results on Apr 25.

Seagate Technology Plc STX is the second-largest manufacturer of hard disk drives (HDDs) in the United States.

Powered with the right combination of the two key ingredients – an Earnings ESP of +6.69% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Seagate in the to-be-reported quarter as well.

The company is expected to report third-quarter fiscal 2018 results on May 1.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Western Digital Corporation (WDC) : Free Stock Analysis Report
 
Seagate Technology PLC (STX) : Free Stock Analysis Report
 
Twitter, Inc. (TWTR) : Free Stock Analysis Report
 
VeriSign, Inc. (VRSN) : Free Stock Analysis Report
 
Xilinx, Inc. (XLNX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research